The terminator of a dead key is the character that it produces when the next key has no output in the dead key state.

That is a complicated statement, but the idea is quite simple. Normally, a dead key affects the output produced by the next key, such as adding an accent. For example, with the US keyboard layout, option-u adds a diaresis (umlaut, trema) to a following letter, so option-u followed by y produces ÿ. But, if the next key press doesn't have an output defined for that dead key, then the keyboard produces the terminator. So option-u followed by 3 produces ¨3. In this case, the terminator is the accent by itself.

A terminator can be an empty string, so that no output is produced from the dead key when the next key has no output defined for the dead key state.