Liquidity describes how quickly and cheaply something can be turned into cash without changing its price much. Most of the time it is barely noticed. Things can be bought and sold, and the ease of doing so feels like a property of the thing itself.
It is better understood as a property of the moment. Liquidity depends on there being someone willing to take the other side, at roughly the expected price, when it is needed. That willingness is plentiful on ordinary days and can thin out quickly on unusual ones.1
Tested together
The difficulty is that the test tends to arrive for many holders at once. When several people need cash at the same time, they meet the same thin market, and the ease everyone assumed turns out to have been shared and limited.
Liquidity depends on there being someone willing to take the other side when it is needed.
Planning for the unusual day
A practical habit is to ask not how liquid something is today but how liquid it would be on a day when many others wanted the same exit. The answer is usually less comfortable, and more useful.