What does Colossians 3:7 mean?

The Colossian believers are highly encouraged by Paul in this letter. However, their past lives were not godly. Paul knows that these believers were once sexually immoral, impure, and idol worshippers (Colossians 3:5). This was before their faith in Jesus. Now, Paul could say they "once walked." Their sinful lifestyles in these areas are in the past tense as Paul writes his letter

This presents two of the great blessings of salvation. First and foremost, those who trust in Christ are free from the eternal penalty and punishment of their sins (Colossians 3:6). At the same time, Christians are freed from the enslavement of those sins. Through the power of Christ, we don't have to be chained to those evil habits any more.

Notice, however, that freedom from the power of sin does not mean Christians cannot be tempted. Nor does it mean believers are immune to falling back into those sins. Moral perfection during this life is not promised for a believer in Christ. This is why Paul issues warnings about the dangers of sin, even to those he knows have a saving relationship with Jesus. Paul himself admits that he continues to struggle against sin (Romans 7).

"Struggle," truly, is the key distinction between the believer and the non-believer. All men are capable of sin, whether they are saved or not. However, a believer will not continue "living in [sins]." Truly saved believers are not complacent or comfortable in their mistakes. The conviction of God's Spirit compels a true believer to fight against sinful actions, rather than to remain apathetic towards sin.