Latent defect is an existing defect that has not yet caused a failure just because the exact set of conditions has never been met.
Masked defect is an existing defect that hasn’t yet caused a failure, just because another defect has prevented that part of the code from being executed.
Below scenario flow explains latent defect practically. The application has facility to print invoice either by Laser printer or by Dot Matrix printer (DMP). In order to achieve the same the application first searches laser printer. If he gets a laser printer he uses the laser printer and prints it. If he does not get a laser printer, application searches for DMP. If the application finds a DMP application prints using DMP or else an error is thrown.
Now for what ever good reason for this application till now there was never a chance that laser printer was not present. So the application never got tested for DMP. That means the exact conditions never met for DMP. This is called as Latent defect.
Now the same application has two defects one defect is in the DMP search and the other defect is in the DMP print. But because the search of the DMP fails the print DMP defect is never detected. So the Print DMP defect is a masked defect.
Latent and Masked defect