What exactly does “biodegradable” mean?

The concept of biodegradability:

The term "biodegradable" denotes a product's ability to be broken down by natural organisms (bacteria, algae, mushrooms) into non-hazardous products (water, CO2) that can then be recycled by nature itself. The term "bio" also refers to a product's very low eco-toxicity levels as far as living organisms are concerned (measured by tests on algae, fish and daphnia).  However, just because a product carries this label does not mean that it can be deliberately discharged into the environment. The term only guarantees that the negative effects on the environment will be kept to a minimum in the event of lost lubrication or accidental discharge.
The level of a lubricant's biodegradability can be measured by standard and standardised tests. The benchmark test that various eco-labels have chosen is the OECD 301 B biodegradability test.