Not reaching one's full potential. The origin of the term is "short selling" a stock (i.e., betting against a company). The "short seller" essentially "borrows" stock from a company and agrees to pay back the company whatever the stock is worth at some point in the future. The purchaser sells the stock immediately, anticipating that the price will fall over the next few months. If the stock price actually falls, the purchaser will pay back the company less money than what the purchaser sold the stock for.
Jane: "I'm not good at science classes."
John: "I think your selling yourself short."
Jane: "Want to see a movie tonight?"
John: "Let's not sell ourselves short here. I heard Warren G is putting on a concert in Williamsburg."