Billable hours are the only hours that generate revenue directly — writing the code, designing the asset, running the consultation the client is actually paying for. Non-billable hours cover everything that supports that work but isn't itself billed: sending invoices, finding new clients, revising proposals, bookkeeping, and ordinary business admin.
The gap between the two is the single biggest reason a freelance hourly rate needs to be much higher than an equivalent employee's hourly wage. A freelancer who wants to take home $75,000 a year can't just divide that by 2,080 working hours, because a large share of those hours — often 20-30% — will be non-billable. The target income has to be divided by billable hours only.
Agencies and consultancies track a "utilization rate" (billable hours ÷ total hours available) precisely to monitor this gap; a utilization rate below roughly 65-75% usually signals pricing or staffing problems.