I have no idea what this means. On the surface it suggests a 1-night penalty if you cancel by 2pm the day before, but that interpretation leaves open the penalty for canceling after this time.

I do think that if a hotel is going to have a cancellation penalty, it ought to be crystal clear. Something like "Cancel before 2:00pm hotel time on September 22, 2010 - no charge; cancel on or after 2:00pm hotel time on September 22, 2010 - $123.10 will be charged" removes any ambiguity.