An unfinished item is an item that needs to be continued by attaching parts to it. Examine the unfinished item to see what parts are missing, or add it to the crafting window. Items that do not have the Add to crafting window option when right-clicking, can usually be dragged and dropped into it with your mouse.
Items used to have a chance to be created as unfinished items. Although they needed no additional parts attached, they required the same actions as improving an item with tools, raising their quality. Every action had a chance to finish the item.