A muggle is a non-geocacher.
The activity of Geocaching is secretive by virtue of the need to keep the caches safe from unwanted attention. This has a direct parallel to the imaginary wizard world of Harry Potter. In Harry Potter non-Magic people, who are unaware of the Magical world all around them are called Muggles. These Muggles generally must not find out about the wizard world and great care it taken to keep is secret. Likewise Geocaching is a world which is best keep secret from non-geocachers. Non-geocachers have therefore been termed Muggles.
It is generally accepted to be bad form to disclose the location of a geocache to a muggle because they might take or trash it. While most geocachers take care to keep caches secret by being discreet, stealthy and generally not drawing attention to a cache from time to time caches do go missing this is refered to as Muggled.
To be a true muggle is to be unaware of geocaching. For example, if you are a geocacher then your spouse is a geocacher by proxy, unless of course they have no idea why you duck out for the paper and come back in three hours!