Pressure drop is just what it says. You have, for example, 120 PSI coming out of your compressor discharge, yet at your application half a plant away, the pressure is 95 PSI. How come?
As air travels through the air lines, the friction of the air moving along on the inner wall of the air line slows the air at the outside of the air stream, and the air in the middle moves faster as a result. This creates turbulence. Turbulence contributes to pressure drop.
Then, every fitting, every orifice the air travels through, every leak point the air travels past, slows the travel of the air and reduces the pressure that can be delivered. If air is moving more slowly, it takes longer to come up to pressure at a specific location. If that application is using air faster than it can arrive, the results of pressure drop is that the application will starve for air.
As air moves from the compressor receiver or discharge through the plant, typically the air lines should reduce in size to the application, ensuring that the air supply to your application is sufficient. Line size reduction at the application from the supply will help ensure that the air pressure remains constant there, assuming the lines are big enough for the application being driven by compressed air.
In a system that is designed and built correctly, between the compressor discharge and point of use, the norm is to see a 5-10 PSI drop. If you are seeing more pressure drop in your air lines than that, there is some problem with your air plumbing.