It is the distortion of the image dimensions, such as making a square look like a trapezoid, the shape of an architectural keystone, hence the name of the feature.
In the typical case of a projector sitting on a table, and looking upwards to the screen, the image is larger at the top than on the bottom.
The effect is usually corrected by either using special lenses in tilt–shift photography or in post-processing using modern image editing software.
Keystone correction is a feature included with many projectors that provides the ability to intentionally "distort" the output image to recreate the original rectangular image provided by the video or computer source, thus eliminating the skewed output that would otherwise result due to angled projection.
The ability to correct horizontal keystone distortion is generally only available on larger or professional level projectors.
In most consumer units, this is easily corrected by moving the projector left or right as necessary, or less often by lens shifting, with similar principles as tilt–shift photography.