I hear it most in connection with D-1 programs that are, in fact, D-1's, but not considered to be in the "upper crust" competitively speaking. For example, Lafayette and Georgetown are D-1 programs, and a fine schools, but it's unlikely you'll see them in Omaha anytime soon.
My son is at a D-2 school; he was lightly recruited by some D-1's, but not the Rice's, LSU's or Miami's of the world. We considered them to be "lower level" D-1's, which is the same thing I guess.