Impermanent Loss refers to the decrease in value associated with tokens being staked in a liquidity pool.
Given the way AMMs work, when the relative price of tokens change, the total value of the tokens held by the liquidity provider will decrease.
To compensate the liquidity provider, they are paid a yield generated by charging a fee on transactions.
So, if you are yield farming, and earning say 10% yield, you can still lose value due to the relative value of the tokens in the pool changing. Even though you end up with more tokens than you started with, if the relative value of the tokens in the pool changes by more than 10%, you can end up with an impermanent loss.
It is called ‘impermanent’ because of course, of the relative value of the token later returns to its original value, then you recover the impermanent loss. It only becomes ‘permanent’ when you extract your tokens.
Links:
Here is a link to a CoinMarketCap article on how to use options to hedge against impermanent loss.
Here is a link to a ChainBulletin article outlining the calculations when different assets with different weights are allowed.
Here is a link to an impermanent loss calculator.
Here is an introduction to Impermanent Loss from Whiteboard Crypto: