Plain English Meaning
Something on the airplane stops working properly, or works in a way it shouldn't. The pilot has to recognize it, decide what to do, and handle it so the flight stays safe.
Full Definition
Failures or abnormal operation of an airplane's mechanical, electrical, hydraulic, fuel, powerplant, pressurization, or avionics systems that prevent the system from functioning as designed and may require pilot action to maintain safe flight.
Context Anchor
Seen in emergency and abnormal procedures, aircraft manuals, checklists, and training scenarios for equipment problems.
Derivation
From Latin 'mal' meaning bad and 'functio' meaning performance. A is literally a 'bad performance' -- the system is doing something, but not what it should.