Apart from the obvious meaning (adjective describing something that cannot fail), the term if often used with a different connotation when describing the behaviour of critical systems.

A fail-safe device is designed to revert to a safe state when malfunctioning - for instance by using low or high asserting circuits. Which state is safe depends on the circumstances - this entry from The Evil Overlord list might shed some light on the subject:

"96. My door mechanisms will be designed so that blasting the control panel on the outside seals the door and blasting the control panel on the inside opens the door, not vice versa."