It's the relationship between the flour and water. e.g. 1000gm flour, 600gm water = 60% hydration.
It's expressed in 'baker's percentages', in which the other ingredients are expressed as a percentage of the flour, not as a percentage of the total amount of ingredients.
Bakers always work with weights and percentages because flour can have a lot of different volumes depending on how it was milled, the amount of moisture it has absorbed from the air, etc. Weight 3 cups of flour, you're probably about 60 % hydration.