Liquidity is how much money is available to trade against at each price. A deep, liquid market can absorb large buys and sells without moving much. A thin market moves hard on even a small order.
Slippage is the gap between the price you see and the price you actually get. In a thin market, your own sell can push the price down as it fills, so you receive far less than the screen promised. The bigger your order relative to the pool, the worse it gets.
This is how people get trapped. The chart shows a nice gain, but when they try to sell, there is not enough on the other side. The exit price collapses, and a paper win becomes a real loss. The price you see is not the price you can leave at.
Liquidity is your exit. A profit you cannot sell into at a fair price is not a profit yet.
Tip. Before you buy, check the size of the liquidity pool against how much you plan to hold. If your position is large next to the pool, plan to exit in smaller pieces so you do not crush your own price.