Liouville's theorem in Physics refers to the theorem that under Hamiltonian evolution the volume in phase space occupied by a collection of particles remains constant - that is these particles behave like an incompressible fluid.

For example consider a box full of monoatomic gas molecules. The phase space for this system is 6 dimensional. Now each molecule may be represented by a point in phase space. Liouville's theorem states that as the system evolves the total volume occupied by these particles in phase space will be conserved.