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It's tag that tells Google which url for given post is most preffered. This helps avoid problems with duplicate content. Use if you  have www and non-www url or post with same content within different categories.

Here's more from Google

I think Etsy does all that stuff for you automatically. If you check source code of your store at Etsy it already has rel canonical, so no need to worry.

Make sure your URL for on page report looks like this www.etsy.com/shop/yourshopname

It's how canonical is build.