Luft is a German word that means "air", or "space".
In chess, the term refers to a move designed to give the king "room to breathe". It is often done to avoid mate threats (potential or actual).
In this simple position Black threatens a 'back rank mate' with Rd1, therefore white must address this threat. There are four moves which do this:
These four moves have one thing in common: the moved pawn has left a "hole" behind it, which the King can use to escape from attack. At its most basic, that is what "creating luft" means: to provide the King with escape options.
It can be a good idea to make this type of move in the opening/middle phase of the game, particually when:
a) there are doubled rooks down open files (making a back rank mate a possibility)
b) where you want to play a "waiting move".
c) when you want to stop the enemy moving onto a square (for example, in lots of games players will play moves like Ng4, or, in the opening phase moves like Bg4 (often pining a Knight to the Queen) so by playing a move like h3, the bishop/knight won't be able to move to that square, and of course, you have also given the king some "Luft" [space].
d) where you are thinking about the endgame (often the king becomes a powerful piece in the endgame, but in order to be so it needs to be "activated", having a pawn 'out of the way' means that the king can be activated a ply or two faster)
Yet luft must be created carefully, because moving the pawns in front of the king leaves holes, and these holes can give the enemy chances to attack. An example exists in the above position: g3 is a bad move for white because after Bh3!, black has mate next move. As you can see, while g3 created luft, it also created a weakness at g2 which black was able to successfully exploit.