Unfiltered is the olive oil that after its final separation (in the oil mill) does not go through the filtering phase. This means it retains moisture and solid residues. Over time, sediment will form inside the storage container.
The fermentation of this sediment gives the well-known organoleptic defect called muddy sediment.
The sediment and moisture together degrade the quality of olive oil. Unfiltered olive oil may have a higher percentage of phenolic compounds than filtered (depending on how it is filtered) but it is more sensitive to oxidation and fermentation resulting in its quality deterioration very quickly and shorter shelf life. It should be consumed within a month of its production.