It means that mouse clicks will be reported to whatever is reading the terminal as standard input, the position and click will be encoded in an escape code similar to a special function key. Text mode mouse-aware applications (e.g. aptitude) can then use that to perform functions like any "real" graphical use interface (GUI) programs use a mouse.
Such reporting can be overridden by holding the shift key pressed while performing the mouse action, e.g. if you want to simply select some text instead of passing a drag command to the running application.