Whether a text matching operation distinguishes upper-case (capital) letters from lower case (is "case sensitive") or not ("case insensitive").
Case in file names should be preserved (for readability) but ignored when matching (so the user doesn't have to get it right). MS-DOS does not preserve case in file names, Unix preserves case and matches are case sensitive.
Any decent text editor will allow the user to specify whether or not text searches should be case sensitive.
Case sensitivity is also relevant in programming (most programming languages distiguish between case in the names of identifiers), and addressing (Internet domain names are case insensitive but RFC 822 local mailbox names are case sensitive).
Case insensitive operations are sometimes said to "fold case", from the idea of folding the character code table so that upper and lower case letters coincide. The alternative "smash case" is more likely to be used by someone who considers this behaviour a misfeature or in cases where one case is actually permanently converted to the other.
"MS-DOS will automatically smash case in the names of all the files you create".