I would say potency is the strength of the attack. Not to be confused with your strength.

Don't think of it as the damage you do. A level 5 character doing an attack with a potency of 100 will do considerably less damage than a level 50 character doing an attack with the same potency. But take two level 50 characters. Assuming all the gear is the same, the one who does an attack with a potency of 200 will do twice as much damage as the character who does an attack with 100 potency.

This is why all of the rotation threads talk about attack in terms of potency, not damage. Damage all depends on your level, your gear, enemy defences, auras, buffs and debuffs. But the potency of an attack will always be the same.