Xon / Xoff is a software flow control mechanism.
It can only be used in character oriented data transmissions (not binary transfer) as it relies on the use of a pre-determined Xon and Xoff character. The basic idea is simple, when the receiver buffer fills to the point it cannot receive any more data it issues an Xoff (Transmit Off) to the transmitter. When the transmitter sees the Xoff character, it stops transmitting. It will only resume once it sees a corresponding Xon.
The disadvantage of such a system is that, should an issued character become damaged in transit, no action will be taken by the transmitter.