Something that's handmade wasn't made by a machine, but formed, built, or constructed by an actual person. A handmade sweater from your grandma is one she knit herself.
Handmade items can look awkward and inexpertly constructed, but just as often they're more beautiful and special than their machine-made counterparts. Handmade pottery is unique, each bowl or mug looking slightly different since they're made and glazed individually, by hand. A handmade birthday card from a young relative is charming in a way its Hallmark equivalent could never be. Handmade comes from the sense of "made by hand."