It is the middle of the three LDS kingdoms of glory. Mormons who were not valiant enough in their efforts to follow the LDS gospel and non-Mormons with good morals will eternally dwell in this kingdom. It is a good place, but not nearly as good as the Celestial kingdom. They will not live with Heavenly Father, but can receive visits by Jesus.
“Those who go to the terrestrial kingdom will be honorable people. Some of them will be members of the Church, and others will not. They will be those who did not accept Jesus on earth but later accepted Him in the spirit world. The people who will live there will not be part of an eternal family but will live separately, without families.” (Gospel Fundamentals, Chapter 36: Eternal Life.)