It means to give up on something, to chicken out. Used in sports when one team is said to have lost for they were intimidated by the other team, or in a fight when one fighter loses and lost spirit during the fight.
But can also be used in everyday situations. Like when someone wants to go talk to a man or woman in a bar, but gives up. Friends might say the other person amarelou.
- Ih, você não ia até lá pedir aumento pro seu chefe?
- Ah, amarelei. Eu vi a porta aberta mas não tive coragem…