For passport application, the file status on the website indicates that my police verification is "adverse". What does this mean?

The most likely problem is:

Your police report says you do not reside at the address given, or that you were not available for police verification. If you feel that the absence was temporary and that you normally reside at that address, you can write to RPO(giving your file number) and request a re-verification. RPO needs to get a clear police report from the re-verification, for issue of a passport

OR

The police report might have said that you have unresolved criminal cases against you. In such cases, your file cannot be cleared, unless the cases are cleared by the courts. If the cases have indeed been dismissed, you could submit a copy of the court order and approach the RPO for a re-verification by the police. RPO will refer your file to the police, along with a copy of the court order.

On receipt of a clear report from the police, your file will be processed further for issue of a passport. In cases where the information regarding the criminal case had not been disclosed, a penalty will be imposed and the file cleared after the payment of penalty.