The institution that holds your mortgage wants to ensure that you are paying the taxes/insurance/other non-mortgage expenses on the house. So, they estimate what the total costs are for these elements and divide that cost over the payment schedule for a year, adding the cost to each payment.
For example, if the bank wanted to ensure that you paid your land taxes and those taxes were $12,000 for the year, they would add $1000 per month (assuming a monthly payment schedule) to your mortgage payment. When the tax bill comes due, the bank would pay the bill from your escrow account.
Generally speaking, there's no 'good' or 'bad' escrow balance, it merely represents how much the bank is holding (in escrow) to pay off planned liabilities against the property. Money in your escrow account does accrue normal interest, like any savings account.