Clipping is when a value that would otherwise exceed its permissible range has to be truncated. Clipping can occur at either or both extremes of the range. Steps, note velocities and MIDI control values are all seven-bit numbers which allow 128 unique values, ranging from 0 to 127 for unsigned values, or −64 to +63 for signed values. Applying an excessive offset to step values via track velocity or velocity modulation can cause the values to exceed their range, in which case they must be truncated or clipped.
For example, suppose a track's step values range from 0 to 127. Offsetting the track's velocity by 100 causes the steps to range from 100 to 227, but since values exceeding 127 are clipped to 127, the result has a much smaller range, from 100 to 127. Furthermore, any details that were present in the clipped range (128 to 227) are lost. Squashing of range and loss of detail are both characteristic of clipping.
Clipping is potentially an issue for all track types, but it's a particular concern for note tracks because the range of note velocities determines the dynamic range of the resulting music. Unintentional clipping of note velocities can reduce the subtlety of your composition. One way to detect it is by using the Color Velocities option in the Piano bar. If you see a lot of bright red or dark blue notes, you're probably clipping. Another method is to use the Velocity Range command on your note tracks: it reports the range of velocities in use, taking all offsets into account, and also reports clipping.