Definitions for "Potential output"
The economy's level of production capacity. This is the level of aggregate output the economy can produce on a sustained basis, without causing inflation to either rise or fall.
The economy's maximum sustainable output level, given the supply of resources, the state of technology, and the underlying economic institutions; the output level when there are no surprises about the price level.
A level of production the economy is able to achieve with stable inflation. A protracted period of output above potential tends to generate higher inflation and vice versa.