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This is commonly use in the software trade. Tier 1 refers to the metros - Bombay, Delhi, Madras, Calcutta, Hyderabad, Bangalore and the like. Cities which attract most of the talent.

Tier 2 and the next rung cities like Coiambatore, Trivandrum, Cochin, Vizag, Mangalore, Pune the next largest so to speak and those that are now of interest to the IT majors since the costs there are lower and the population less mobile. Lots of stuff is happening there now.

Tier 3 will be the smaller cities - Trichy, Madurai, Nasik, Baroda etc. which are just waking up and seeing some action

No real definition beyond that...

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Q: List of Tier 1 Tier 2 Tier 3 cities in India?
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