Taylor told Rolling Stone that this song is about "an early girlfriend and the calm you feel in the presence of someone who knows you really well." This rules out Joni Mitchell and Carly Simon, each of whom he later dated (he was married to Simon from 1972-1983).
This is the song that inspired George Harrison to write the Beatles' 1969 hit, "Something," which used "Something in the way she moves" as the first line.
Taylor signed with The Beatles' label, Apple Records, after his demo tape get the attention of Peter Asher, a longtime associate of the band (and brother of Paul McCartney's girlfriend, Jane Asher) who had recently taken a job at the label. Asher arranged for Taylor to audition for McCartney and George Harrison, where he played this song. They decided to sign Taylor to Apple and have Asher produce his first album.
Asher recorded Taylor at Trident Studios in London, where The Beatles were working on The White Album (Taylor worked there when The Beatles weren't using it). Taylor's self-titled debut album didn't sell nearly as well as expected, and he was booted from the label soon after - not because of disappointing sales but because the label fell into turmoil and began purging acts in 1969. Taylor signed with Warner Bros. and released his second album, Sweet Baby James, in 1970. That album did much better, and launched Taylor to stardom.
Taylor was thrilled when he heard that George Harrison borrowed his title for The Beatles song "Something." It's only fitting: in Taylor's song, he includes a lyric that was a 1964 Beatles song: "I Feel Fine."
Taylor wrote and recorded this song in 1968 while staying in an apartment in London. The album was recorded with an ensemble of members from the London Philharmonic Orchestra, although on this track, producer Peter Asher kept it simple, with just Taylor's voice and acoustic guitar.