THD condenses the harmonic content of a signal into one figure: the square root of the sum of the squares of all harmonics, divided by the fundamental, expressed as a percentage. A THD of 0 % corresponds to a perfect sine wave.
It is measured separately on voltage and on current, and the two do not mean the same thing. Voltage THD describes the quality of the supply being received, and EN 50160 limits it to 8 % in low voltage. Current THD describes what the installation pushes back into the network, and it can be very high without the voltage distorting much if the supply is stiff.
As an indicator it has a known limitation: it does not say which harmonic dominates. Two installations with the same THD may need different solutions depending on whether the third, fifth or seventh is in charge, so the full spectrum is still needed to specify a filter.