Liquidity refers to how quickly and easily an asset can be converted into cash without significantly affecting its price or value in the process. Cash itself is the most liquid asset there is, since it's already money. A savings account or liquid mutual fund is also highly liquid, since you can typically access the money within a day or two.
On the other end of the spectrum, assets like real estate or certain fixed deposits with lock-in periods are far less liquid — selling property can take months and often involves price negotiation, while breaking a locked FD early may attract a penalty. When building a financial plan, it's important to keep a portion of your money in highly liquid assets, like an emergency fund, so you're never forced to sell a long-term, illiquid investment at a bad time just to access cash urgently.