It means that the closest ancestor that two people have in common is a grandparent. (If they were any more closely related, they would be siblings.) Second cousins means that the closest common ancestor is a great-grandparent. Third cousins, then, have a great-great-grandparent as their most recent common ancestor.
First cousins share a grandparent, second cousins share a great-grandparent, third cousins share a great-great-grandparent, and so on. The degree of cousinhood (first, second, etc.) denotes the number of generations between two cousins and their nearest common ancestor.
Are third cousins cousins?
First cousins share grandparents, counting back two generations to their shared ancestors. Second cousins count back three generations to their great-grandparents. Third cousins count back four generations to their great-great-grandparents.
What do 3rd cousins have in common?
Your second cousins share a set of great-grandparents with you, your third cousins have the same great-great grandparents, and so forth. So your granddaughter and your sisters grandson would be second cousins, for example—they have two generations between them and the common ancestor (your parents).