A liquid asset converts to cash almost immediately and close to the last traded price. An illiquid one forces you to wait for a counterparty or to accept a worse price to find one now.
It is measured three ways: the volume that actually trades, the gap between the best bid and the best offer, and the depth of the order book, meaning how much can be executed before the price moves.
Liquidity is not a fixed property of an asset. It evaporates exactly when it is most needed. In a sharp selloff spreads widen, market makers step back, and the same shares that sold in a second yesterday demand a discount today.