This verse belongs to the YHWH run, Proverbs 16:1–9.
Quick answer
Mercy and truth, covenant loyalty and faithfulness, are the ground on which iniquity is covered, and the fear of the LORD is what walks a person away from evil. Relationship deals with the past; orientation guards the future.
Read both lines
The two lines answer sin's two halves. The first speaks to guilt already incurred: atonement is provided, and the ground named is mercy and truth, the covenant pair of 3:3, the LORD's own character. The second speaks to evil not yet committed: the fear of the LORD is the road out. Together they refuse to split what religion often splits, forgiveness and formation.
What it does not mean
No one earns atonement by performing acts of mercy and truthfulness, as though enough kindness pays down iniquity. That turns covenant language into a ledger. Mercy and truth here are the atmosphere of the covenant in which the LORD covers sin: His character as the ground, not our contributions as the currency.
From this side of the cross
The gospel names the provision. Mercy and truth met in a Person: "Mercy and truth have met together; righteousness and peace have kissed" (Psalm 85:10) stopped being poetry about the future at the cross, where iniquity was not merely covered but carried away.
Related: Proverbs 3:3 · Psalm 85:10 · Hebrews 10:11–14
New King James Version®, Copyright © 1982, Thomas Nelson. All rights reserved. Full copyright information. Scripture provided by API.Bible.
Go Deeper
If this verse has been used to put weight on you that it was never carrying, ask about it directly.