"A shout delivered for the purpose of focusing all of one's energy into a single movement. Even when audible KIAI are absent, one should try to preserve the feeling of KIAI at certain crucial points within Karate techniques. Manifestation of KI (simultaneous union of spirit and expression of physical strength)."
"Spirit yell."
Ki - is a symbol of spirit, mind, energy, force
Ai - is a contraction of the verb 'awasu' which literally means 'to unite'.
It isn't just yelling. The kiai is generated in your abdomen. Something I often say about this is, "After a loud kiai, you should feel like you did a bunch of sit-ups. You shouldn't feel like you have a sore throat."
It isn't an intimidation or distraction tactic. If someone intends you serious harm, it would be silly to think that you shouting will scare them away.
A kiai is not placed in a kata to draw attention to a particular technique (although modern styles of karate have done this for tournament purposes).
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A proper kiai should add power and focus to your technique. Think of it as an advanced form of the breathing that we do during the normal course of karate.