Mike Wuerthele, writing for Apple Insider:

Purgeable space is data on the drive that Sierra has determined is superfluous, and not necessary to be stored on the drive. Examples are files in the trash, videos that have already been watched, music downloaded from Apple Music (but not rips from CD), and other data synchronized with iCloud.

In a nutshell, if you run out of space, purgeable space is the set of files that are backed up in the cloud and can be safely deleted. This post takes you through the basics of enabling this feature and doing the initial setup. If you are running macOS Sierra, it’s worth a read.