So, it literally means “low fidelity”. And that means there’s extra sounds besides just the music: recording hardware scratching, fingers moving on the instruments, static from electric pickups, etc. Perhaps echoes from around the recording studio, or shuffling noises as the performers adjust themselves. All these things *could* be ‘removed in post’ (edited out) or reduced with careful equipment management, so leaving them in is either a conscious choice or a lack of extra production.
What that translates into is a type of music that appears to have low production values, feels more homegrown, and has less *oomph* (for lack of a more precise word). Partially because high energy songs will usually drown out any lofi elements but perhaps because the lofi effects are familiar enough to be comfortable, a lofi sound has become a go to for relaxing soundtracks.