The grade, or "N rating" of the magnet refers to the Maximum Energy Product of the material that the magnet is made from.  It refers to the maximum strength that the material can be magnetized to.  The grade of neodymium magnets is generally measured in units millions of gauss oersted (MGOe).  A magnet of grade N42 has a Maximum Energy Product of 42 MGOe.  Generally speaking, the higher the grade, the stronger the magnet.