The term Third World arose during the Cold War to define countries that remained non-aligned with either capitalism and NATO (which along with its allies represented the First World), or communism and the Soviet Union (which along with its allies represented the Second World). This definition provided a way of broadly categorizing the nations of the earth into three groups based on social, political, and economic divisions. Due to many of the Third World countries being extremely poor, it became a stereotype such that people commonly refer to undeveloped countries as "third world countries," often used in a pejorative way. Over the last few decades, the term 'Third World' has been used interchangeably with the Global South and Developing Countries to describe poorer countries that have struggled to attain steady economic development.
This discussion pretty much falls into the wikipedia definition. Take it as you will.