What does it mean if an item is 'biodegradable'?

When anything can be broken down (decomposed) by the action of microorganisms like bacteria or fungi biologically (with or without oxygen) while being assimilated into the natural environment, it is said to be "biodegradable." No environmental impact occurs during the process. Either biodegradable solids (sometimes referred to as compostable) or liquids that decompose into water are acceptable terms.