Wood is a natural, biodegradable material. That means certain insects and fungi can break wood down to be recycled via earth into new plant material.
Decay, also called rot, is the decomposition of organic material by fungal activity. A few specialized species of fungi can do this to wood. This is an important process in the forest. But it is obviously a process to be avoided for wood products in service.
The key to controlling decay is controlling excessive moisture. Water by itself doesn’t cause harm to wood, but water enables these fungal organisms to grow. Wood is actually quite tolerant of water and forgiving of many moisture errors. But too much unintended moisture (for example, a major wall leak) can lead to a significant decay hazard. If a wood product is to be used in an application that will frequently be wet for extended periods, then measures need to be taken to protect the wood against decay.
Various types of insects can damage wood, but the predominant ones causing problems are termites. Termites live everywhere in the world where the climate is warm or temperate.