It is, yes. It's... Well, it's roughly what it sounds like. If Source is a soul, then an Essence is something like a piece of it, but tied to their magic. So if you have a wizard who specializes in fire magic, you're likely able to harvest a fire Essence from them.

[ probably. the game doesn't actually explain. but this sounds ok ]

They're exceedingly useful! They're the main component for making runes.