It is the extent to which the defect can affect the software. In other words it defines the impact that a given defect has on the system. For example: If an application or web page crashes when a remote link is clicked, in this case clicking the remote link by an user is rare but the impact of application crashing is severe. So the severity is high but priority is low.
Priority defines the order in which we should resolve a defect. Should we fix it now, or can it wait? This priority status is set by the tester to the developer mentioning the time frame to fix the defect. If high priority is mentioned then the developer has to fix it at the earliest. The priority status is set based on the customer requirements. For example: If the company name is misspelled in the home page of the website, then the priority is high and severity is low to fix it.
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