Means that performance is not the best that could be achieved. It is inferior to the potential that exists.
Losses through inefficiency, through dissatisfied customers, through inadequate methods, through waste of materials or effort, etc.
It is management's job to optimise performance. This can only be done through learning.
Learning about what is predictable about current performance (good or bad), learning about what causes variation in current performance.
It is ironic that much of management's traditional behaviour causes sub-optimisation. For example, paying attention to output usually increases variation. That means more (nasty) surprises.