Which electromagnetic phenomenon makes a compass align with Earth’s magnetic field?

Magnetic torque makes a compass align with Earth’s magnetic field.

A compass needle is a small permanent magnet with a magnetic moment. Earth’s magnetic field exerts a turning effect, or torque, on that moment. The torque rotates the needle until it lies approximately along the local magnetic field direction, giving the compass its useful north–south orientation.

The needle does not point exactly toward geographic North everywhere. It follows the horizontal component of Earth’s magnetic field, and the angle between magnetic north and geographic north is called magnetic declination. The needle can also tilt downward or upward because of the field’s vertical component; this angle is called magnetic inclination or dip.

Magnetic torque is different from magnetic force. A nearly uniform field can rotate a compass without producing a significant net force on it. Nearby iron, electrical equipment, and other magnets can distort the local field and make a compass reading inaccurate.