A paper in the Resources I think'll sum it up better than I can. Here
Here though is the definition from it:
"Something that is not apparently genuine (real, true). "Fluff" is also defined as an individual (usually self-identified 'Kin or Therian) who is misled, closed/refuses to learn and may be varyingly delusional (delusion is defined as holding beliefs or ideas despite evidence to the contrary-basically rejecting facts). Example: Someone who truly things they can break the laws of science."
Another use of "fluff" can be in the pejorative sense for the reasons outlined by @KnightFenrirWulfhart. It may also further be understood as "excess" and "useless", because it has no substance or content to it that is meaningful. In the case of an individual who is, for example, said to be "all fluff", it might also mean they have nothing to them. So in this instance, not only are they inventing their own narrative and origin, as well as its contents, none of it is valid because it is all artificially generated.
I also know and use it as a term for something fluffy or plushy. Same with Fluff-Fluff as a name. I didn't knew it had any other meaning and thought it is just colloquial language for something fluffy.
"So when it's used to refer to a self-identified otherkin or therian individual, it's usually used to basically indicate that they're just a roleplayer and not genuine?" In answer to this question, @Ambrose, that is mostly correct. Yet it is not limited to the roleplaying element, more often it can be said that the person in question is mostly attempting to be special or distinct in some fashion in order to gain social currency. No small number of people are looking to receive attention and being different, often radically so, is an expedient way to do that on certain internet communities and now bleeding over to reality. For them, it has reasonably nothing to do with actually being that thing, if they so much as are, rather it is about getting attention for it.
So in some ways they may or may not be roleplaying - pretending to be therian or otherkin - or wholly genuine, but that is less the focus. The actual thing of substance, them being that thing, is not what they are looking for or legitimately caring about. One could say a major issue with a person who is "all fluff" is that they are a "poser", to borrow some older language. Namely because while they are that thing, at least outwardly, whatever inner contents there should be are either nonexistent or severely lacking.
Prior to the otherkin community, I've seen it used among pagans, witches and people who practice magic to refer to someone whose practice was so full of New Age bright light and happiness that it lacked true depth, and was also very light on actual research into the cultures that they kept referencing. Also referred to as "fluffy bunny." These would be the kind of people who say you can get anything you want if you only believe in it hard enough, and they'd try to deny anything negative.