Bad physics is just what it sounds like: screwing up the way the universe ticks. This can be accomplished by an impossible action performed by a character, or a warping of the world to cater to a character or situation's favor or disfavor.
At times, canon characters in works of fiction (and sometimes embellished nonfiction) break or bend the laws of physics. Truly, how could Mr. Cloud Strife carry his ludicrously enormous Buster Sword, or Legolas manage to nail a Nazgul's flying mount that is flying in the sky from the ground? In a wholly realistic work of fiction, they would not be able to—but why is this acceptable?
For one, the rules of the canon are crafted as such to allow them to. LotR Elves are long-lived and often preternaturally skilled. Cloud Strife has augmented super-soldier strength. These unrealistic feats are acceptable breaks in reality because we want to see them happen... and if they are pulled off well the plot is carried solidly by the audience's suspension of disbelief. Whether by justified skill, innate ability, or just plain dumb luck, we can believe they are able to accomplish these things—and this is the backbone of most fantasy and science fiction. Why can Obi Wan Kenobi send objects flying with a wave of his hand? He's a Jedi, and takes such bonuses and penalties a Jedi would typically have in order to wield that power.
When a canon character doesn't follow the laws of physics, or the laws of physics cater to him to make his success (or failure) possible, and there is NO justification or suspension of belief involved, then the canon character may be bordering on Canon Sue/Stu territory.
By Fanfiction Characters
A fairly good rule of thumb is that if canon characters follow physics, then so should an original character. If a canon character is a Jedi, then that character should be able to do all a Jedi does and no more, save for specialization. If a canon character is an 'Ordinary Thirteen-Year-Old Girl,' she should be able to do all that an Ordinary Thirteen-Year-Old Girl can do so far as physics are concerned. A Thirteen-year-old girl shouldn't be able to use Cloud's Buster Sword, or nail something far out of the range of regular, arcing bowshot. If a character breaks the laws of physics, it had better have a very good reason why it's allowed to. There are some continua wacky enough to make physics optional, but otherwise it should not be assumed that anybody is able to make physics act in their favor when it comes to impossible feats.
Fanfiction characters that change physics to survive (not as a superpower, more like 'Because I took middle school blackbelt karate I escaped from his sleeper hold with one swift movement and ended up with my supple thighs snapping his hairy neck') or expect physics to ignore their character are usually Mary Sues. In this case, messing with the laws of physics is a charge.
By the Setting
Face it. Ignoring laws of physics and other science facts is what allows us to have cool explosions in space, or giant robots that would otherwise collapse under their own weight. Like Legolas's impossible physics feats, or the use of magic or super powers in a work of fiction, these breaks from reality are acceptable and very enjoyable. We can believe the giant robot exists in this setting, because that is a rule of the setting: giant robots. In this same way, we can accept things like magic, or that the One Ring of Power falls painfully slowly whenever it does that sort of thing in the movies.
Physics doesn't care about a story. It doesn't allow something unjustified to happen. In each canon, the laws of physics might be slightly different... say, allowing canon characters to perform feats otherwise impossible. But bullets don't suddenly veer off course to save a character, unless magic or superpowers are involved. Objects don't fall sideways. Hair is not, for some reason, gravity-defying without major effort and product use, unless weird hair is normal for the canon. Poor authors sometimes use very, very unacceptable breaks from reality to baby a character or perhaps bash a character by literally turning the rules of the whole world for or against their favor.
This also can be invoked accidentally, if an author is unclear on what they are writing. Vagueness can cause very odd things to happen in the world of a fic, and horrible writing in that vein is often the source of much agent frustration and woe. In this case, messing with the laws of physics is a charge.
When something is really and truly funny and INTENTIONALLY funny rather than an unfortunate construction of poor writing, sometimes messing with physics can become acceptable and entertaining rather than charge-worthy.
It goes without a saying that wizards, Jedi, and some superheroes are able to and allowed to directly mess with the laws of physics. Also, there are some plots that revolve around physics being distorted or played with. Audiences can accept this so long as the reasoning behind them is not dumb. This is primarily because these powers are directly mentioned and not a cover-up to make a character seem more awesome or for the world to bend to a character's needs.
Canonical Null Physics Zones
While it is generally accepted to follow the laws of physics as they appear in canon (Ender's Game anti-gravity and Dragon Ball Z flight movement are both non-normal physics conditions), there are some places in canon where physics may not exist as we know it, and the authors of canon continually make stuff up. These may be spiritual realms, chaos lands, or similarly weird places where the laws of gravity, momentum, friction, etc., may not apply. In this case, it may be acceptable for a fanfiction author to include wacky depictions of physics in absence of any one real, non-contradictory ruleset to follow.