Sag refers to the amount that the suspension fork is compressed due to the rider simply sitting on the bike. Generally, you should try to set up your forks so that sag accounts for 20-30% of the overall travel. However, some forks are meant to be used with no sag, so you should check with the manufacturers recommendations for your particular fork and also take into consideration your own preferences. Notice how the head angle increases as the fork is compressed. It is important to account for sag in the fork when you layout the frame geometry. If you neglect sag, the head angle when a rider is on the bike will be steeper than you planned.

Fork Sag Animation