Culling basically means removing the fry from the gene pool you're trying to breed for. For example, say I'm breeding guppies and I want only guppies with blue tails. As my fry age and I can see their colors, I will have to cull any fry that do not have blue tails or else I'm going to end up ruining my "blue tail only" strain.
The way you choose to cull (remove undesirable fish) Is up to you. Some people simply remove the fry with unwanted traits (in my example, say guppies with red tails) and either sell them to local fish stores or sell/give them away online or at fish clubs. Some people feed fry with undesirable traits to larger fish. Some people euthanize undesirable fry. How you choose to remove them Is up to you, but If you're a somewhat serious breeder you will have to cull at some point.
One other thing, you should always eliminate any fry with genetic defects that cause them physical problems so that you're not polluting the gene pool by just passing them on to someone else that may breed them. For example if I suddenly turned up having a ton of guppy fry in one of my spawns that all had deformed swim bladders, I would not give them away or sell them, I would destroy them. That also goes hand-in-hand with being a responsible breeder/fishkeeper. You should breed for the betterment of the species, always (although what is "better" is always widely debated, serious deformities should not be allowed to live unless you're sure they are not going to breed).