The luminosity of a star is the total power of the radiation it emits, in watts. It is a property of the star and does not depend on where the observer is.
What we measure on Earth is the radiant flux intensity: the power arriving per unit area. The radiation spreads out evenly over a sphere, so the intensity falls with the square of the distance. Twice as far away means one quarter of the intensity.
A standard candle is an object whose luminosity is known. If we measure its radiant flux intensity at the Earth, the inverse square law gives its distance. Finding a standard candle inside a distant galaxy gives the distance to that galaxy.