Primarily a term used within the transgender community that basically means a person is perceived as the gender they identify as.
Passing is much more than just having people see you as the gender you identify as. It can bring up issues relating to discrimination, violence, privilege, medical care and treatment, etc.
Although passing is a highly desirable quality for many transgender folks, it is not always the case. Several transgender people chose not to elect hormone therapy or gender transition surgery.
Many people believe it is easier to pass as a FTM (female to male) than a MTF (male to female).