The theoretical limit of the resolving power of an optical system. Due to diffraction even a perfectly manufactured lens or mirror has a fundamental limit to its resolving capability. As the light passes through the aperture of a telescope it diffracts (bends) causing stars to be seen as a bright disc with rings, known as the Airy disc. An optical system with the ability to produce images with angular resolution as good as the instrument's theoretical limit is said to be diffraction limited.
Usually, the resolving power of an amateur telescope is limited by atmospheric effects and not by diffraction effects.