What Portia is saying here is that mercy knows no limits.
By the time Portia delivers this speech, Shylock has refused payment of the money and turned down an offer of double the amount. For Shylock, it has gone beyond the money. For him, it has become a chance for him to strike a blow for all those personally suffered at the hands of Antonio plus symbolically he was avenging all the injustices his people had suffered. He had made a pact with god.
For Portia it would appear simple. In her world, it is the Christian thing to do to be merciful. This is easy for her to say since she has never experienced the prejudice and abusive treatment that Shylock has experienced.
She appeals to his humanity knowing she has an ace up her sleeve. Since he has not been treated humanely by the Venetian society, this idea is totally alien to him.
She is telling this man that mercy knows no limits, yet he has never in his life experienced mercy.
When Portia tells Shylock that "the quality of mercy is not strained," she implies that mercy should flow from the heart and should not be compelled or forced from someone.
In Act IV, Scene 1 of The Merchant of Venice, Portia, disguised as a young, wise, and learned doctor of law, is supposedly sent to advise the Duke about the legality of Shylock's demand for payment on the lien for his loan to Antonio, a Venetian businessman.
Shylock has made a loan to Antonio. He has not made the loan out of kindness, nor even out of a desire for profit. Instead, he has lent Antonio money knowing full well that the merchant will fail to meet the deadline for repayment. Should Antonio fail to repay the loan, Shylock can demand the unusual penalty to which Antonio has agreed; more specifically, Antonio must give Shylock a pound of flesh. Shylock has made this arrangement because he desires to avenge himself against the Christian merchant who has made a practice of loaning money without charging interest. Also, Antonio has assisted Shylock's customers by lending the amount they need at the last minute to pay off Shylock and avoid their loan penalty. Consequently, Shylock wishes to be rid of Antonio because the merchant has frequently prevented Shylock from making a profit. He also feels that his revenge is justified because of the cruelty he has suffered at the hands of the Venetians.
When Portia arrives in disguise, she appeals to Shylock's sense of decency hoping that he will be merciful. Unfortunately, however, her speech about mercy as being godlike does not move Shylock. As the antagonist of the play, he adamantly demands payment under the terms agreed upon by Antonio.