The term Laundering was derived from the metaphor meaning to conceal the identity, source, and/or destination of finacial transactions.
The term, in respect to Mafia, refers to a player's attempt to conceal their own involvement in a lynch or kill through evasive language, while attempting to convince other players. It is used as a Mafia tactic to push the town into lynching without actually being on the wagon themselves.
Examples can be simple, such as:
Player A: Well, I'm suspicious of Player B, he's done <list of actions> but not enough for a Vote.
Player A: I'm very suspicious of Player B, but I'm not starting a wagon on him yet.
Or much more complicated.