When something is impaired, it's diminished or damaged. Someone who can't see very well has impaired sight.
When something is broken and isn't working at 100%, it's impaired. People with impaired hearing are deaf, and people who are physically impaired have to use crutches or wheelchairs. Everyone who wears glasses or contact lenses has impaired vision. If you break your ankle, your ability to walk is impaired. And if something caused you to make a bad decision, you could say your judgment was impaired.