Source lines shorter than the applicable fixed-form length are treated as if they were padded with spaces to that length. (None of this is relevant to source files written in free form.)
This affects only continued character and Hollerith constants, and is a different interpretation than provided by some other popular compilers (although a bit more consistent with the traditional punched-card basis of Fortran and the way the Fortran standard expressed fixed source form).
g77 might someday offer an option to warn about cases where differences might be seen as a result of this treatment, and perhaps an option to specify the alternate behavior as well.
Note that this padding cannot apply to lines that are effectively of infinite length—such lines are specified using command-line options like -ffixed-line-length-none, for example.