Each bid must be higher-ranked than the current highest bid. If not then it is termed "insufficient".
If an insufficient bid has been made then any player may draw attention to it, and the Director should be called. Refrain from saying anything.
Acceptance
If a player makes an Insufficient Bid then the next player has the option of accepting this bid.
If the next call is made before anyone has noticed, then the illegal call has been accepted, you cannot go back.
Correction
If the next player doesn't accept the Insufficient Bid then the offender must change it to a legal sufficient bid, but they may not Double.
They can make a bid that shows the same denomination at the lowest sufficient level i.e. same suit
They can make a comparable call, a bid that has a similar meaning, same purpose, or is a subset of the insufficient bid. Usually when artificial bids are involved. Talk to the Director about this, away from the table.
They don't have to make one of these bids, but if they don't then their partner is barred from the rest of the auction, and there will be lead restrictions if they become defenders.
Example
North opens 1S and East bids 1H.
Firstly, South may accept the 1H bid and continue the auction, maybe bidding 1S or even passing.
If not, then the 1H bid is withdrawn and East has to make a sufficient bid above 1S, but they cannot double.
If East bids 2H then everything is fine, the auction continues with no more issues.
East can make any other sufficient bid - 1NT or 2D or 4H if they like - but in this case West will have to pass for the rest of the auction. And if East-West become defenders then the first time West is on lead, Declarer can prohibit the lead of any one suit not legally bid by East.
Further thoughts and advice.
It's possible that the insufficient bid was also an unintended bid, which overrides the insufficient bid. Call the Director, ask to speak to them away from the table, and claim an unintended bid. If the Director agrees then they will rule under Law 25 rather than Law 27.
There is no obligation for any of the four players to draw attention to the insufficient bid if they notice it.
If you make an insufficient bid, don't rush to change it, and say nothing about what you intended to bid ! If it is an unintended bid, ask to speak to the Director away from the table.
If attention is drawn to the insufficient bid, by any player, then the Director should be called immediately. The Law here is quite complicated, get the full picture and know your rights and options. The Director won't be interested later if you make your own ruling at the table !
If the next player bids, and then attention is drawn to the insufficient bid, call the Director. But the Director will tell you to play on, the acceptance cannot be wound back. (However, an unintended bid can be corrected by the offender until their partner calls. The following bid is also withdrawn.)
If the insufficient bid is accepted, there is no unauthorised information, all players can continue bidding, and there will be no lead restrictions for the offending side.
The next player to call cannot consult their partner on whether to accept the insufficient bid. Their partner should remain silent.
The offending player cannot consult their partner on which option to take.
Before deciding whether to accept the insufficient bid, the next player should be made aware that if they accept the bid then play will continue with no further issues.
Before deciding whether to accept the insufficient bid, the next player should be made aware of the offender's options, including whether any replacement bid will be allowed as a comparable call.
The Director should not just ask "Do you want to accept the bid ?" You are allowed to hear all the implications if you do or don't accept the bid. Ask the Director to clarify to everyone.
The next player, even if they intend accepting the insufficient bid, should respect the Director and allow them to explain the offender's options to the whole table. See Law 9B2.
As a player, make yourself aware of the options for offender, study the relevant laws.
The offender should be told their options, including whether any replacement bid will be allowed as a comparable call. The Director will probably take the offender away from the table.
The next player cannot tell the offender what option to take. They cannot say "Make it good."
If the next player accepts the insufficient bid, the whole table needs to be reminded that there are no further issues, anyone can bid, no unauthorised information, no lead restrictions.
If the offender replaces their insufficient bid with a call at the lowest legal level that shows the same denomination, then play continues and there are no further issues. Note that a transfer would show the same denomination. If the offender makes a jump bid in the same denomination, their partner has to pass for the rest of the auction.
"Comparable" calls are possible, but complex.
The offender is allowed to make any other legal call, but they may not Double or Redouble.
If the offender makes any other call, including Pass, other than the lowest bid in the same suit or a comparable call, then the Director should inform the whole table that offender's partner has to pass for the rest of the auction, and that there will be lead restrictions if the offending side become defenders.
Lead Restrictions - if the offender makes any other call then the insufficient bid has been withdrawn then Law 26 comes into play. If the offenders become defenders then the Director should step in after the auction has finished and explain that Declarer has options when the offender's partner first comes on lead.
Lead Restrictions - Declarer has the option of forbidding offender's partner from leading any one suit not specified by the offender in the legal auction. Not just the suit of the insufficient bid, but any one suit that has not been bid by the offender legally. Declarer cannot demand a particular suit.
So, when should you accept an insufficient bid ?
Firstly, you don't have to be kind and just accept the insufficient bid, you are allowed to take full advantage.
You are not guaranteed a top board either way.
The default is to NOT accept the insufficient bid. The implications for the offender are much tougher.
The main reason to accept the insufficient bid is that it has given you more bidding space that you won't have if they make the bid good at the next level. It can help you to confirm a fit with partner, or to show a second suit, or to bid NoTrumps to show strength and a stopper.