Liquidity describes the depth and readiness of a market. A liquid market has many resting orders close to the current price, so a trade can be filled quickly with little change in price. A thin or illiquid market has few orders, so even modest trades can move the price noticeably.
Liquidity is often visualized through the order book and through depth charts that show how much volume is available at each price level. Markets for major assets are typically deep, while smaller or newer assets tend to be thinner.
Liquidity matters because it determines how much slippage a trade may incur and how stable prices are during periods of heavy activity. It can also change rapidly, contracting during volatile conditions when participants pull their orders.