It means the freedom of the individual to act according to his own conscience. Moral liberty is necessary for the growth of his or her character and personality. It does not exist when human mind or thought is controlled and regimented by religion, customs, tradition or political power or law.
One of the great defects of Idealist philosophy of the State was that it declared the will of the State to be the real will of the individual and thus justified unconditional obedience to the State. But such an obedience will destroy the moral liberty of the individual.
The real will is not the will of the State but the will of the individual himself which may or may not be embodied in the will of the State. Moral liberty consists in the right to freedom of belief and opinion.