> It refers to the argument that software quality does not necessarily increase with functionality: that there is a point where less functionality ("worse") is a preferable option ("better") in terms of practicality and usability.

I only recall this phrase being used in terms of a compromise e.g. "we don't have time to finish everything, so let's ship it as it is because 'worse is better'".

Good to see the actual origin of the term.