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The BFU stands for “Before First Unlock”. BFU devices are those that have been powered off or rebooted and have never been subsequently unlocked, not even once, by entering the correct screen lock passcode.
In Apple’s world, the content of the iPhone remains securely encrypted until the moment the user taps in their screen lock passcode. The screen lock passcode is absolutely required to generate the encryption key, which in turn is absolutely required to decrypt the iPhone’s file system. In other words, almost everything inside the iPhone remains encrypted until the user unlocks it with their passcode after the phone starts up.
It is the “almost” part of the “everything” that we target in this update. We’ve discovered that certain bits and pieces are available in iOS devices even before the first unlock. In particular, some keychain items containing authentication credentials for email accounts and a number of authentication tokens are available before first unlock. This is by design; these bits and pieces are needed to allow the iPhone to start up correctly before the user punches in the passcode.