When sending bitcoin (BTC) from one wallet to another, the wallet's entire balance is split into spent and unspent outputs. An unspent transaction output (UTXO) is the amount of BTC that was not spent in previous transactions. In simple terms, the UTXO is the amount of BTC associated with a wallet that can still be spent by its owner.
For example, if a wallet contains 0.5 BTC and its owner wants to send 0.4 BTC to a friend, the resulting transaction will contain two parts consisting of the whole 0.5 BTC:
(1) The 0.4 BTC is sent to the friend's receiving Bitcoin address
(2) The remaining 0.1 BTC is sent back to the owner's wallet to be spent in future transactions
Since the 0.1 BTC wasn't spent in the given transaction, it is referred to as the UTXO.
*Please note that the necessary network fees were not included in this example.