Well, literally, it means when somebody is trying to translate an idea from one language (say English) to another (say Spanish), and the target languge doesn't have the same idea as the original language, the meaning is completely lost, even in a word-for-word translation.
Bob: Man, Jake is a studmuffin.
Juan: Friend, what is a studmuffin.
Bob: Well, let me think.
After trying to explain and translate the word "studmuffin" to Juan, Bob realizes that there is no real good way to get the meaning across, without losing the meaning or being completely understood in the first place.
You could say that the word "studmuffin" was lost in translation.
In everyday conversation, it means somebody failed to get their point across and that person gave up trying.