Hair Density refers to the number of hair strands growing out of each square inch of your head. You have have heard people say "I have thick hair" or "I have thin hair" and this is what those individuals are referring to. It is important to be aware of how much hair you have going in, as you can estimate time and amount of product needed more efficiently.
You can determine your hair density a few ways, one being putting your hair in a ponytail and observing the circumference. Another way is to pull a peice of hair towards you, and if you can easily see the strand odds are you have thicker hair.
If the strand is less visible, you have thinner hair.