The __net liquidation value__ reflects your current account value – if you were to liquidate (i.e., close out) every position in your portfolio at the current market price, thus converting every holding into cash, this is the amount you'd have. It is calculated as
$$ \text{Net liquidation value} = \text{cash} + \text{market value of longs} - \text{market value of shorts (absolute value)}. $$
Your P&L and returns are computed based on changes in your net liquidation value.
For example, if you have $100 in cash, $200 in long positions, and $50 in short positions, then your net liquidation value is
$$ 100 + 200 - 50 = 250. $$