I'm not entirely sure myself, but if I were to wager, it is where the primary conflict and arc of a protagonist is not primarily about the physical quest, the action and the plot, but rather their internal change, their character development.
Now, you might think 'oh, but isn't every story that'? No, not really. Something like 'Back to the Future', while an entertaining movie, has largely static protagonists; both Marty and Doc Brown don't have character arcs, and the main story is 'main character is stranded in the past and needs to get out'. The primary conflict is external rather than internal.
Take instead something like (and this is going to be a touch controversial given it's hardly literary or popular) 'the Disappearance of Haruhi Suzumiya'. The main character, Kyon, winds up in a similar situation: He's whisked away from his weird, supernatural-event-filled world that he knows and gripes about constantly and is instead placed in a completely normal world.
He freaks out and tries to get home, making it seem like the main conflict will be external, but in the end, the means to get home is figured out relatively quickly. The main conflict then becomes... is it right to change the world back to how it was, and does he, the main character, want it?
He thinks about all the times he's hated being ran around and suffered the consequences of big magical happenings he has no control over and seriously debates with himself if, now that he has the means to return to his old life, he really wants it. He's thinking about the character who changed the world for him, a dear friend of his, and whether his relationship with her trumps his relationship with the old world.
Ultimately, he chooses the old world, because he develops as a person and realises that... yeah, for as much as he gripes about the crazy happenings in the old world, he wouldn't replace it for the world. 'Disappearance' is a character study of Kyon and his role as a snarky everyman amidst the chaos.
I hope this helps.