You can think of it as "how much benefit I get from a thing".
What he is referring to is diminishing marginal utility, which is that as you consume more and more of a good (in this case, income) you derive less benefit from it. https://en.wikipedia.org/wiki/Marginal_utility
This is backed up by psychology research indicating that people hit a happiness plateau at some income level.
He means diminishing _marginal_ utility. Extra income always gives increasing utility on an absolute basis.
An extra dollar of income gives a dollar of utility to everyone, but an extra dollar to Bill Gates gives less marginal utility than it gives to me because it's a much smaller proportion of his net worth and therefore will make less difference to his life than it would to mine.
>"Like most people, extra income gives me diminishing utility, but VCs have an arguably nearly linear utility in income."
Specifically, what is this "utility" and how is it diminished by more cash compensation exactly?