Bleed is experienced by a player when her thoghts and feelings are influenced by those of her character, or vice versa. With increasing bleed, the border between player and character becomes more and more transparent.
It makes sense to think of the degree of bleed as a measure of how separated different levels of play (actual/inner/meta) are.
Bleed is instrumental for horror role-playing: It is often harder to scare the player through the character than
the other way around. An overt secluded
dice roll against a player's perception stat is likely to make the character more catious.
A classic example of bleed is when a
player's affection for another player carries over into the game or influences her
character's perception of
the other's character.