What does it mean to provide liquidity?

As a liquidity provider (LP), you deposit tokens into a liquidity pool and these tokens can then be used by traders for swapping.

Note that you will not get the same amount of tokens back as you initially put in. You may get less of one token and more of the other depending on price changes (on one or both of the tokens) because you are allowing traders to swap your tokens for an LP fee.

Please watch this video for a better understanding on how LPing works.