A sell-on clause entitles a selling club to a percentage of any future fee the buying club receives when it sells the player on. It is usually a slice of the profit rather than the whole fee, and it lets a smaller club keep a stake in a player it can no longer afford to keep.
The distinction between a share of the fee and a share of the profit matters more than the percentage does. Twenty per cent of the whole resale fee is worth far more than twenty per cent of the amount above what the buying club originally paid, and reporting rarely says which one has been agreed.
Selling clubs use the clause when they know they are selling early. A youth-development club that cannot hold on to its best graduate can accept a modest fee now and keep an interest in the player becoming expensive later, which is often worth more than the original sale.
Buying clubs dislike them for the obvious reason: the clause eats into a future profit and complicates the next negotiation, because the third club is effectively being asked to fund a payment to a club it has nothing to do with. Some deals buy the clause out later for a one-off payment.