This. 1000% this.
Especially for new grads, folks entering a branch of coding they haven't done professionally before, or folks looking to change careers (or come back to tech after some time away).
I see resumes from students all the time with all the same projects (because they were assigned that in school) and two things make you stand out:
1. Doing stuff that clearly you have a passion for (or at least an interest in). That may mean running a soccer stats website that scrapes other sites and amalgamates it, or it may mean contributing something to an existing OSS project, or it may mean putting something up on github.
2. Being able to speak intelligiently about why what you did was any good (or that you at least recognize why it sucked). Many students in particular have trouble eludicating design details and/or the "why" of their choices--even a "we chose PHP because it's what the other team members knew" is OK, as long as there is a reason and a defense.
Contributing to OSS is terrific because:
1. I can look at your code to see if it's any good, and
2. The code is open so I don't have to worry about possible legal encumberances to talking about it, and
3. I can be reasonably confident you know how to use source code control and/or play nice with other developers.
If you're not VERY confident in the other stuff on your resume, OSS contribution is the best thing to put in a portfolio.