Link equity is shorthand for the value a link passes to the page it points to. A link from a strong, relevant page passes more than a link from a weak or unrelated one.
Several things affect it: the authority of the linking page, how relevant it is, where the link sits on the page, how many other links the page has, and whether the link is followed.
It's a useful mental model rather than a number anyone can measure precisely. In practice, relevance and placement in the content matter as much as raw authority.
Example
A link to Margin in the body of a top-ranking research-tools guide passes more equity than one in the same site's footer.
Putting it into practice
Where to use it: Nofollow link checker and How to choose sites to pitch.