It relates to risk tolerance of investors. So in high risk times like an economic crash or the recent covid outbreak investors might choose to move investments into less volatile instruments such as bonds and cash. As the situation improves we might see a return to risk on where investors delve more into the stock market, high yield bonds, commodities, or even the crypto market. Within forex risk off tends to lead to safehaven currencies like the USD, CHF and JPY being bullish and during risk off we might see them become more bearish as money moves into other currencies.
A risk-on environment describes when investors are willing to invest in higher-risk securities. They feel that corporate profits, economic outlook, accommodative central bank policies and other factors have created a positive environment for investors. While there is always an inherent risk in stock market investing, risk-on investing indicates that investors feel that there is less risk in the market. Risk-off scenarios typically happen during a recession, when stock market volatility increases or when war or terrorist attacks happen. Investors shift their portfolios into a “defensive” position and buy these types of investments in their portfolios: bonds, utility stocks and others.
As far as I understood, it deals with the predominant mood of the traders and investors on the market. Risk on and risk off are a kind of similar to the bearish and bullish market. Sometimes participants of the market prefer to buy but sometimes they prefer to play it safe due to high level of uncertainty in the global economy.
That's why it is advised not to take risk more than the extent which is affordable to you to lose. Many people borrow money or even risk their life savings to become rich in forex and make mistakes by losing their entire funds.