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According to the theory of common descent, any two species on Earth living at any time share a most recent common ancestor (concestor1). Any species that is ancestral to two (or more) other species is a common ancestor for those two species. Biologists concerned with phylogeny try to reconstruct such relationships between species in the form of a phylogenic tree.
Identifying common ancestors is one of the tasks you have to do when systematically ordering known species.
Two species are closely related if their common ancestor lived not long ago. This "distance" between them can be measured approximately by the "molecular clock" method, which analyses the number of differences in their respective junk DNA, which accumulates mutations at a steady rate. Of course, most pre-historic species can not be assessed this way because fossil material rarely contains preserved DNA, so systematists use cladistics to determine the most likely common ancestor. Usually it is these recent common ancestors that biologists/paleontologists are concerned with, and the most recent link between later species would be the last common ancestor (LCA) while the LCA of all contemporary life on Earth is known as the Last Universal Common Ancestor (LUCA).
A fossil of the common ancestor or a related form is a transitional fossil. (Of course it's impossible to be sure if such a fossil is really the common ancestor or a closely related species.)
- The neologism concestor was coined by Richard Dawkins when producing his 2004 book The Ancestor's Tale which looks at some of man's ancestors. The word is not yet commonly used, there are six results on google, all of them regarding Dawkins' book.