It is computed as the liquidation-adjusted value of your collateral divided by your debt. Above 1.0 you are safe; at or below 1.0 anyone may liquidate you. It responds to collateral prices, to borrowed asset prices, and to accrued interest, which erodes it quietly over time.
Example: $10,000 of collateral at a 0.8 liquidation threshold against $5,000 of debt gives a health factor of 1.6, and the collateral can fall about 37.5% before you are liquidated. Borrow $7,000 instead and the factor is 1.14, leaving only a 12.5% buffer.
Because gas spikes and chains congest exactly when prices crash, the buffer needs to be wide enough that you are not relying on a last-minute top-up. Many experienced borrowers treat anything under 1.5 on a volatile collateral as an open invitation, and set alerts well above their real limit.
Related: collateral-factor, on-chain-liquidation, lending-protocol, looping-leverage