Fungible
In short: Fungible describes the ability to exchange any unit of a cryptocurrency or token for another identical unit of the same cryptocurrency or token.
Fungible describes the ability to exchange any unit of a cryptocurrency or token for another identical unit of the same cryptocurrency or token. One bitcoin can be swapped for any other bitcoin, with no difference in value.
Why it matters
Fungibility is what lets an asset work as money. Prices, balances and order books only make sense because every unit is the same. When you deposit a coin to a custodial exchange and later withdraw it, you receive the same amount of that coin rather than the exact units you sent, and that works precisely because the asset is fungible. Most cryptocurrencies and ERC-20 tokens are fungible, while non-fungible tokens (NFTs) are the opposite: each one is unique. There is a subtlety. On transparent blockchains, every coin's history can be traced, and some services treat coins linked to theft or crime differently. That can make certain units less welcome than others, which is why privacy-focused projects argue that strong privacy is needed for full fungibility.
Example
If you lend a friend 10 USDT and they repay you with 10 different USDT, you are even, because any 10 USDT are worth the same. If you lend them a unique NFT concert ticket, you expect that exact token back, since another ticket may be for a different seat.