In the simplest of terms, when a creditor charges-off an account they are taking an account off of their accounting books that they assume will never get paid. They consider it a loss and remove it from their balance sheet so that it can't be carried on the books as an asset.
Creditors have a legal obligation to charge-off accounts when they are a certain number of days past-due, but the timeframe varies depending on the type of debt and whether or not you're on a workout plan to repay the debt. These plans can be either internal plans set up directly with the creditor, or external plans such as debt management plans (more on DMPs later). For example, credit card accounts that aren't on a repayment plan must be put into charge-off status if the account is 180 days past-due, while personal loans and credit card accounts that are on a workout plan will charge-off after 120 days of delinquency. Since the timeframe varies from account to account, it's best to ask your creditor what their specific guidelines are.
A large misconception is that once an account has charged off, you are no longer responsible for the debt. Not true. Creditors charge-off accounts for their benefit, not yours. Rest assured, the creditor still wants their money and they'll do what they must to get it. This could mean using internal collection tactics, selling the account to a bill collector with a collection agency, or the worst case scenario- bring you to court and get a judgment. A charge-off is one of the worst marks that you can have on your credit report because it's the highest stage of delinquency that an account can reach. Since charge-offs remain on your credit report (make sure you understand your credit report) for 7 years you'll want to avoid them at all costs