Inactive students are students who are no longer actively taking lessons with you. To keep your billing and schedule history accurate My School Books won’t let you delete students who have taken lessons (or paid you). But since you probably don’t want to schedule or email them anymore, My School Books allows you to mark them as Inactive. This removes their name from the list of students available for lessons, etc.
If you need to record a payment or make an adjustment to an inactive account you’ll need to temporarily mark the student active. This won’t have any adverse effects, it just makes the student visible through My School Books again.
Families automatically become inactive when all the students in that family are inactive. (If a family only has one student, then making the student inactive makes the family inactive.)