Plain English Meaning
When something on the aircraft stops working properly. It could be an instrument giving wrong readings, a system losing power, or a piece of equipment failing outright. The pilot has to recognise it, work around it, and keep flying safely.
Full Definition
Failures or abnormal operation of one or more of an aircraft's onboard systems — such as the pitot-static system, electrical system, vacuum system, flight instruments, autopilot, or engine instrumentation — that affect the accuracy, reliability, or availability of information and controls the pilot relies on to fly the aircraft safely, particularly in instrument conditions.