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What does ‘COLLATE SQL_Latin1_General_CP1_CI_AS’ do?

Please be aware that the accepted answer is a bit incomplete. Yes, at the most basic level Collation handles sorting. BUT, the comparison rules defined by the chosen Collation are used in many places outside of user queries against user data. If “What does COLLATE SQL_Latin1_General_CP1_CI_AS do?” means “What does the COLLATE clause of CREATE DATABASE do?”, then: The COLLATE {collation_name …