Marking a client inactive removes the client from your view, but allows you to keep all their data and documents just incase you need them in the future.
Marking a client inactive will hide them from every part of the app. For example, you will no longer see them on your client list, you wont be able to associate projects with them, or track time time to them.
When you select a client as shown below a "Mark Inactive" button will appear.