What is the gap limit in a Bitcoin wallet?

A wallet derives addresses in order along its path. When recovering from words or an xpub, it scans until it finds a run of addresses with no payments — the gap limit, 20 by default in many wallets — and stops. Anything beyond the gap stays unfound.

This explains some “missing balance” scares: coins received at an address beyond the gap don't show up. Rescanning with a higher gap limit usually finds them.