When I talk with working writers, they always ask about rejection. How many times should you be rejected before you give up? (A million.) What does such-and-such mean in a rejection letter? (Hard to say.) What's a typical rejection rate at a publisher or agency? (99 percent nearly everywhere.) Why do editors reject my work when my family and friends love it so much? (Your family and friends love you; an editor is objective.)
First, let me say that receiving a rejection in response to a query letter is not worth talking about. For whatever reason, your query just didn't fit the editor's/agent's needs; or it was directed to the wrong person/place; or it somehow didn't reflect professionalism and confidence. The rejections worth analyzing are the ones that come in response to a full-length proposal or manuscript.
Here are a few phrases that you might find in a rejection letter, plus my view on what editors or agents might mean when using them.
"Doesn't fit our needs (at this time)"
If read literally, this means you've targeted the wrong agent or editor; your work has the wrong tone, style, approach (etc.) for whatever this person typically enjoys or acquires. Sometimes it's strictly a matter of personal taste. But this phrase is also commonly used to mean "Doesn't fit our needs ... because the work is bad ... and we only take high quality work."
"Doesn't have sufficient market appeal"
Your work may lack a certain commercial quality needed for it to sell; it may be too eccentric, too esoteric, or too literary. It may be about mother-daughter incest or some other topic that agents and editors don't consider marketable. Or, possibly, your work lacks punch--it's not different enough, unique enough, or special enough for people to take notice.
"Just couldn't get excited about it"
This means exactly what it sounds like. If someone makes this comment about your fiction, it usually reflects the lack of a compelling story or hook or character. Your writing or storytelling may be flat.
"The writing doesn't stand out"
In addition to concerns immediately above, your work may lack a voice, and the story might be boring, unoriginal, or uninspired.
"Not fresh enough or original"
For fiction writers, perhaps your plot is too cliché, your characters are too common, or your story is not special enough or compelling enough for publication. In a competitive market, your story has to stand out and have unique qualities.