It’s often used to describe a distro in which (at least some) parts of the system are read-only on runtime. Furthermore, features like atomicity (i.e. an upgrade either happens or doesn’t; no in-between state), reproducibility^[1]^ and improved security against certain types of attacks are its associated benefits that can (mostly) only exist due to said ‘immutability’. This allows higher degree of stability and (finally) rollback-functionality, which are functionalities that are often associated with ‘immutability’ but aren’t inherently/necessarily tied to it; as other means to gain these do exist.
The reason why I’ve been careful with the term “immutable” (which literally is a fancy word for “unchanging”), is because the term doesn’t quite apply to what the distros offer (most of these aren’t actually unchanging in absolute sense) and because people tend to import associations that come from other ecosystems that have their own rules regarding immutability (like Android, SteamOS etc). A more fitting term would be atomic (which has been used to some degree by distros in the past). The name actually applies to all distros that are currently referred to as ‘immutable’, it’s descriptive and is the actual differentiator between these and the so-called ‘mutable’ distros. Further differentiation can be had with descriptions like declarative, image-based, reproducible etc.
That is, two machines that have the exact same software installed should be identical even if one has been installed a few years ago, while the other has been freshly installed (besides content of home folder etc). So stuff like cruft, bitrot and (to a lesser degree) state are absent on so-called ‘immutable’ distros.