The phrase refers to the good-faith assumption that you intended to pay with settled funds. Selling too early breaks it. There is no fine; the penalty is a 90-day restriction to settled cash only, which effectively ends active trading in that account.
The safe habit in a cash account is simple: trade only with cash that has already settled, and track the settled balance rather than the buying power figure.
Example: Monday, sell stock A for $5,000, settling Tuesday. Monday, buy stock B for $5,000 with those proceeds. Tuesday morning, before settlement completes, sell B. That is a GFV. Selling B on Wednesday instead is not.
Related: free-riding, cash-account, unsettled-funds, settlement-cycle