Literally, an SMS text message that is mistakenly interpreted by the recipient to mean something other then what the sender meant the message to convey. This is a common problem as the limitations of characters that fit into a standard SMS text message require the sender to abbreviate or otherwise cut out words making the message harder to understand, hence lost in textlation.
Any text can be misinterpreted as grammer is rarely used so even a simple text like:
A text that says "what are you doing?" could be interpreted by the recipient to mean what are they doing that very minute or it could be a critique from the sender asking the recipient what the hell they are doing, i.e. what's their problem. This rather simple example demonstrates lost in textlation.
When matters of relationships are discussed via text, that is where things can really become problematic.