A mobile-friendly website is one that is easy to read, navigate, and tap on a phone, with text large enough to read and buttons big enough to hit without pinching or zooming. In short, the phone version is as easy to use as the desktop one.
For a small business, this is not a nice-to-have, because most of your visitors, and most local searches, happen on a phone, and Google favors sites that work well on one. A site that forces people to zoom in, hunt for a tiny phone number, or fight a menu built for a mouse loses them fast, often before they read a word about you. Being mobile-friendly means the layout adapts to the small screen, usually through responsive design, so nothing has to be pinched or reworked by the person holding the phone.
I build and test every page on a phone first, then check that it stays fast there too, since a cramped page and a slow one lose customers the same way. The reason is plain: most of your customers will meet your business on a phone before they meet it anywhere else, so that is where it has to work.