Hey TR,
Clutch slippage is when the clutch slips on the "flywheel". This typically happens when the clutch wears out beyond the minimum limits. On the Shadows, it can also be caused by the type of motor oil you are using because the clutches are "wet" (bathed in oil).
Typically, clutch slippage is easiest detected at higher motor load situations. To check for slippage at low speeds, start rolling about 5-10mph. Pull the clutch in, rev the motor to about 2000rpms and drop the clutch (you want to create a instant loading situation). If the bike doesn't lurch forward agressively and/or you don't bog down the motor, then your clutch is slipping. You can also check it by performing the same test at 45mph in 3rd or 4th gear. In more severe clutch slippage issues, you can detect slippage by rolling on the throttle hard in 3rd gear (about 40mph) and if the motor revs up faster than your speed increases then you have slippage.
Now, I wouldn't do either of these tests on a busy highway. These are best performed on a deserted street as neither case is "safe". And, you don't want to do this very often as dumping the clutch is not good for the motor, clutch, or drivetrain.
Hope this answers your question. I am sure that someone else (like Litnin) will chime in with a more detailed explanation.
Joe