Abstract: The concept and principle of effective stress are significant to the development of soil mechanics. However, some problems such as “Is the effective stress the virtual or real stress?” and “Whether Terzaghi’s effective stress equation needs to be modified or not?” have long been considered to be controversial issues, and there is no consensus up to now. According to the definition that the effective stress is the skeleton stress due to all the external forces excluding pore water pressure, the relationship among the total stress, skeleton stress and pore water pressure can be obtained through the equilibrium analysis of intergranular force and free body of the soil skeleton. Then it may be seen that the expression of the relationship is the Terzaghi’s effective stress equation for saturated soils. It indicates that the Terzaghi’s effective stress is a real physical quantity and has a definite physical meaning. The Terzaghi’s effective stress equation is valid with no necessity to be modified. Moreover, the physical meaning and mutual relations of effective stress, intergranular stress and skeleton stress are clarified in this paper. It indicates that considering the effects of pore water pressure separately, the intergranular stress and the skeleton stress are the same as the effective stress. On the other hand, the skeleton stress can be divided into two components: one is that due to pore fluid pressure and the other is effective stress. They both contribute to the strength and deformation of a soil but play different roles. When the effect of the skeleton stress due to pore fluid pressure on the strength and deformation of a soil can be neglected, changes in the volume and shear strength of a soil are due exclusively to the ones in the effective stress.