It is a hair type, describing a certain texture and curliness... read more here: http://www.naturallycurly.com/curl411/types.php
Some of us are also talking about Fia's typing system, which is as follows:
FIRST CLASSIFIER - Your curliness (or lack thereof)
The straight ones
1a - stick straight
1b - straight but with a slight body wave, just enough to add some volume, doesn't look wavy
1c - straight with body wave and one or two visible S-waves (e.g. nape of neck or temples)
The wavy ones
2a - loose, stretched out S-waves throughout the hair
2b - shorter, more distinct S-waves (similar to waves from braiding damp hair)
2c - distinct S-waves and the odd spiral curl forming here and there
The curly ones
3a - big, loose spiral curls
3b - bouncy ringlets
3c - tight corkscrews
The really curly ones
4a - tightly coiled S-curls
4b - tightly coiled hair bending in sharp angles (Z-pattern)
SECOND CLASSIFIER - What (most of) your individual strands look like
F - Fine
Thin strands that sometimes are almost translucent when held up to the light. Shed strands can be hard to see even against a contrasting background. Similar to hair found on many people of Scandinavian descent.
You can also try rolling a strand between your thumb and index finger. Fine hair is difficult to feel or it feels like an ultra-fine strand of silk
M - Medium
Strands are neither fine nor coarse. Similar to hair found on many Caucasians.
You can also try rolling a strand between your thumb and index finger. Medium hair feels like a cotton thread. You can feel it, but it isn't stiff or rough. It is neither fine or coarse.
C - Coarse
Thick strands that where shed strands usually are easily identified against most backgrounds. Similar to hair found on many people of Asian or native American descent.
You can also try rolling a strand between your thumb and index finger. Coarse hair feels hard and wiry. As you roll it back and forth, you may actually hear it.
THIRD CLASSIFIER - Your overall volume of hair
Put your hair in a ponytail with as much hair as possible in it. Don't bother with the way it looks - the goal is to have most/all of your hair in there. If it means it sits smack dab on top of your head, put it there.
Measure the circumference of the ponytail. If you have bangs and/or you can't get all of your hair in there adjust according to how much of your hair you have measured.
i - thin (less than 2 inches/5 centimeters)
ii - normal (between 2-4 inches or 5-10 centimeters)
iii - thick (more than 4 inches/10 centimeters)