It is a psychological term, specifically in regards to the differentiation between a mother and her child.
As we individuate, we grow to see at the deepest level that we are not our parents and that we are not responsible for their feelings.
As we individuate from a family, or other groups, we are set apart by our unique perspective, skills, and expression.
Indigenous tribes often facilitate an Initiation experience for their children as they move into adulthood. They are told that they will never see their parents again, and they are essentially forced to learn how to parent themselves.
Individuation is also an indicator of the gap between our baseline stress level and our personal expression.