The IRS wants you to pay your taxes throughout the year (hense quarterly estimated payments are expected if you don't have enough withholding) and not just at the end of the year on the return. The program may have computed and added an estimated underpayment penalty using the information you entered in the program but the IRS/state have the right to calculate the penalty based off the information they have on file. The program did not make an ERROR dispite what the IRS letter mentions but the IRS did adjust the penalty and probably added some interest. That is "what it means" and all you can do is pay the bill as directed on the notice.
