Source music is the antonym to classical film score.
Film score in that sense is called “off“-music, because it is coming out of the off. An example: A romantic scene of lovers at a lonely beach is embedded in music for strings, whereas you can’t find any string orchestra at this lonely beach.
In contrast, source music is “on“-music, that is music which is noticed by the characters in the film story. Thus source music takes place in the reality of the film. Some examples might be, that the characters go to a concert or clubbing, the radio or tv is on etc…. or there is a string ensemble sitting on a lonely beach.
In a normal case of licensing source music artist repertoire is suitable, but in some cases you can also use production music (e.g. for music in a disco).