Named for the legendary English figure Lady Godiva, who supposedly rode on a horse through the city of Coventry whilst completely naked, in an attempt to persuade the local lord, her husband, to give the peasants a tax break. The only thing that covered her modesty was her incredibly long hair (that reached down to at least her thighs).
As such, Godiva Hair is any hair in a picture (photo/drawing) that is sufficiently long as to cover the female character's naughty bits. Turns an otherwise straight-up nude pic into a more subtly erotic pic.
*Person 1 looking at porn on Rule34*
Person 1: Dammit, why's her hair so long? I can't see the good stuff. I came here for the nude anime babes!
Person 2: Philistines like you are the reason we can't have nice things, Person 1.
Person 3: Yeah Anon 1, this is a really lovely case of Godiva Hair. Very classy. +1