Packet loss happens when data sent over your connection never arrives. Even small amounts can cause choppy calls and dropped connections.
It's the percentage of data packets that fail to reach their destination. Your browser can't send real ICMP pings, so this test uses failed network requests as a close approximation.
0% is ideal. Under 1% is generally unnoticeable. Above 2–3% you'll likely notice choppy audio/video or dropped connections.