Liquidity refers to how easily something can be bought or sold without causing a big change in its price. A highly liquid asset has many buyers and sellers active at once, so trades happen quickly and near the expected price. A low-liquidity asset has fewer participants, making trades harder and prices more sensitive.
In crypto, large and well-known coins tend to be more liquid, because they trade on many exchanges with high activity. Smaller or newer coins can have low liquidity, which means even a modest trade might move the price noticeably.
Liquidity matters because it affects the price you actually get. In a thin, low-liquidity market, you may find that buying or selling shifts the price against you, an effect related to slippage. Being aware of liquidity helps set expectations about how smoothly a trade will go.