This is set up in the DNS for that IP address. A star indicates that a packet did not come back to fairy. It got lost or thrown away. There are several factors responsible for lost packets. Some gateways don't return the appropriate message requested by traceroute.
Some firewalls use packet filters which block packets used by traceroute.
Finally, packets may be lost as a result of network congestion. If you get one or two stars on a line, it means that performance is bad and data is being lost. Sometimes you'll see the packets bounce back and forth between two routers or even do a big loop through the Internet and come back to where it started. In this case, the Internet routing tables are incomplete or in conflict for your target IP address. If the loop happens within a customer's internal network or between the routers on either end of a customer link, the customer has not set up their routing correctly.