Observability is an industry term, coined to the practice of adding enough telemetry data (metadata) in an application such that an “unknown issue” (one that is not anticipated) can also be identified and investigated when needed.
When being used, it is also seen in relation with adding telemetry automatically (upto the extent possible), making the process seamless & consistent, irrespective of the team member building the application.
The telemetry data here refers to logs, metrics (application and infrastructure), distributed traces and more (e.g. critical events like new releases).