To me, it means understanding the basics of data structures and algorithms, and knowing when and how to apply them to solve problems.
A couple of examples:
Seeing a sorted list of items and knowing how to find an item in that list most efficiently (binary search) [0].
Looking at a map of cities and the roads connecting them (including distances between cities) and knowing that you can use a graph to represent the cities and use Dijkstra's algorithm [1] to find the shortest path between any two cities.
Essentially, being able to look at a problem and see how that problem can be mapped to (and solved by) a specific type of algorithm, then being able to implement that algorithm to solve the problem.
