It indicates that you do not have a newline (usually '\n', aka CR or CRLF) at the end of file. In layman's terms the last byte (or bytes if you're on Windows) in the file is not a newline.
That message is displayed because otherwise there is no way to tell the difference between a file where there is a newline at the end and one where is not. Diff has to output a newline anyway, or the result would be harder to read or process automatically.
Also note that it is a good style to always put the newline as a last character if it is allowed by the file format. For instance, for C and C++ header files it is required by the language standard