Not given enough money to do the job properly. You use it about things that run on a budget — a school, a hospital, a public library, a research project, a government department. The organization exists and is trying, but the money that comes in falls short of what the work actually needs, so classes get crowded, equipment breaks and stays broken, and staff leave. The word is almost always political, and it carries a quiet accusation: someone decided how much to give, and they gave too little. That is why you meet it constantly in news reports and in the mouths of people arguing for more money. Note that it describes an organization or a project, not a person — a person short of money is 'broke' or 'struggling', never underfunded. The usual partner word is 'understaffed' (not enough people), and the two show up together so often that 'underfunded and understaffed' has become a set phrase.