Mud-blood is a foul name for Muggle Born witches and wizards (Meaning that their parents are both Muggles), usually used by Death Eaters. Many people dislike the term "Mudblood" due to its offensiveness.
Even Dumbledore did not like Draco Malfoy saying it to him, yet he was about to be killed. 
"Oh yes, I forgot, your a mudblood Granger, so 10 off for that."
- Draco Malfoy in Harry Potter and the Order of the Phoenix docking points.