Lazarus was very ill and it would lead to his death, but before he died, his sisters sent word to Jesus, hoping, I can imagine, that He would heal their brother. Jesus waited two days until He knew that Lazarus had died. John continues the narration,

These things He said, and after that He said to them, “Our friend Lazarus sleeps, but I go that I may wake him up.” Then His disciples said, “Lord, if he sleeps he will get well.” However, Jesus spoke of his death, but they thought that He was speaking about taking rest in sleep. Then Jesus said to them plainly, “Lazarus is dead. And I am glad for your sakes that I was not there, that you may believe. Nevertheless let us go to him” (John 11:11–15).

When a man sleeps, he looks as though he is dead, and when a man is dead, he looks as though he sleeps.

Sleep may look like death, but the difference is, in a short while, the person awakens.

Then again, we shall all awaken from death, and so in that regard it can be said that a dead person is sleeping, although his spirit is very much alive with God.

Lazarus had died, but Jesus would shortly raise Lazarus from the dead. Hence the Lord referred to Lazarus as sleeping.