It means that the strings are muted not with the picking hand but with the "playing hand". There's a couple of videos that explains that, I think in the guitar fundementals series.
Basically what you do is rest your fingers (of the playing hand) on the string and play it. It will cause a ching sound. Like Eric said, sometimes you have a full chord with x's in it. The trick is to have the nearest finger on the adjacent string touch it just a little so it dosnt sound or sounds "chingy".