A liquid market has many buyers and sellers and a narrow gap between the price to buy and the price to sell. In an illiquid market, a large order moves the price against you, or you cannot sell at all when you need to.
Market liquidity also describes the broader availability of money and credit: "liquidity" is high when central banks are easing and lenders are willing.
Why it matters
Liquidity tends to vanish in a crisis, when everyone wants to sell at once. Investors are paid a premium for holding illiquid assets, but must be able to wait.
General information, not advice.