"What do you mean by that?"

It means these people made a costly error that has to be reported to the IRS along with the sale info.

If the daughter had inherited the condo from Mom's death, she would get a step up in basis to FMV for that date. Then, selling it right away = no gain. Instead, Mom gifted a 50% interest in the property, which is considered to be half what the Mom's basis is in the property. Think if it was money and not real estate; same concept. She gives her Half, which likely is over the gift limit of $15,000 for 2021.

For the "2 years out of 5 years" rule: The Mom was the owner; not the daughter, but the Mom didn't live there. Neither gets the residence exclusion.

The Mom likely intended to have the daughter get half the sale proceeds, but went about it in the worst way. You have two events: Mom's gift of Value. Then, that basis is used to establish the daughter's gain (and the Mom's gain, of course) for the sale.