A chain can show a tight quote for one contract and nothing behind it. Liquidity is the combination of a narrow bid-ask-spread, real size on both sides, meaningful open-interest and consistent option-volume — and the absence of any one of those is enough to make an exit expensive.
The cost is asymmetric and back-loaded. Entering is voluntary and can wait for a good price; exiting under pressure cannot. Most traders discover a product's true liquidity on the day they most need to leave it.
Example: two XYZ strikes both quote $1.00 bid, $1.10 ask. One shows 200 up with 8,000 open-interest; the other shows 2 up with 40. The first is a market. The second is a screen decoration that will fill you at $0.70 when you need out.
Related: bid-ask-spread, open-interest, option-tick-size, penny-increment-program