It means a student should engage in any activity for which he feels passion - not an activity to simply pad a college application. College admission officers are canny and can discern when an application is being embellished. I personally feel an extracurricular activity is a means of seeing the 'true' student, who he really is, where his true interests lie. For extracurricular activities are just that, extra. Time spent on an extracurricular activity could easily be spent elsewhere, so the student's choice of how he spends his extra time is meaningful.
An extracurricular activity can be athletics, performing and visual arts, clubs, community service, summer jobs, or any other hobby which engages the student. The Common App now groups all extracurricular activities in one place, thereby putting a summer job on equal footing as a fancy service project in South America or a residential college summer program. An extracurricular need not be expensive, but can be any activity for which a student feels enthusiasm and demonstrates commitment and depth over time. A competitive swimmer could give swim lessons to low income children, a bibliophile could shelve books and participate in preschool story time at the local library, a flutist could make All State Band.
So to all the high school students reading this post, find an activity you love, one that brings you joy, and engage in it with abandon. True devotion for your selected activity will be evident to an admissions officer reading your college application.