The term used for insulting Muggle-borns or First-Generation witches or wizards. Mudblood is the thing all of the prejudice is based on. Students of Hogwarts seem not to really care about skin color or gender. Instead, it focuses on the bloodline of a witch or wizard. Contrary to popular beliefs, Muggle-borns or Mudbloods are just as good, if not better than Purebloods.
She may be a mudblood but she's better at Charms than you!