In terms of a VPN, obfuscation relates to obscuring or masking user data. A popular obfuscation tool is Stunnel, which is an open-source technology that masks OpenVPN traffic as SSL/TSL. HTTPS uses SSL/TSL to encrypt information. When you use Stunnel, you essentially make it look like your data is coming through standard HTTPS methods rather than a VPN.
Obfuscation is particularly important in restricted areas like China where the web is anything but wide open.