Butt jiggle is the effect that occurs when butt flab jiggles, caused by a character's movement - like a jump, a spin etc. It's defined by a butt being given its own animation or physics within a game. The amount of jiggle varies between characters in a game and even within different moves performed by the same character. Butt jiggle is not to be confused with the more prominent butt wiggle, which involves a character shaking their posterior. For example, Vanessa Schneider from P.N.03 has both butt wiggle and butt jiggle: she shakes her booty as she blasts away (butt wiggle), and her butt jiggles during certain moves because it's flabby (butt jiggle).
Team Ninja, during the release of Dead or Alive Xtreme 3, explained that butt jiggle is a lot more difficult to get right than boob jiggle due to butts being affected by legs stretching and bending. Another reason butt jiggle is less common than boob jiggle is because it's not as universally likeable. Some people find jiggly butts to symbolize something unattractive due to a lack of firmness, while jiggly boobs are never seen as unattractive.
Animation VS Physics
Butt jiggle done manually, which is the case with 2D games such as King of Fighters '96 where Mai Shiranui's butt jiggles when she kicks, or 3D games such as P.N.03 where Vanessa Schneider's butt wobbles during several manually animated animations. Manually animated butt jiggle tend to look more realistic than physics based becuase it comes out exactly how the animator wanted it. On the other hand, being manually animated means that not all of the moves and animations ar affected because of limited time.
Physics based butt jiggle, like in Soulcalibur I-IV, affects all moves but can look a bit out of place because the physics simply aren't good enough.