This is thoroughly covered by Google in this article
The following paragraph is important, as you don't always have to use the disavow tool:
This is an advanced feature and should only be used with caution. If used incorrectly, this feature can potentially harm your site’s performance in Google’s search results. We recommend that you disavow backlinks only if you believe you have a considerable number of spammy, artificial, or low-quality links pointing to your site, and if you are confident that the links are causing issues for you. In most cases, Google can assess which links to trust without additional guidance, so most normal or typical sites will not need to use this tool.
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