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I believe it is how much of the expansion capacity has been used up by previous expansions. Basically like a marker to the game that tells it how much the stadium has been expanded by already.
I may be wrong on that, but it is all I can think of.
I always thought it meant how 'full' the stadium is - e.g. if your capacity is 60,000 but used capacity is 50,000 there's no way your board will consider upgrading it as it still has the potential for 10,000 more of your fans to show up. Perhaps as your reputation increases and you get more fans the used capacity will fill up and your board will then consider expansion?
I think it's used in stadiums that may have a larger capacity that is not used for football matches. You run into this quite a bit in the USA -- some MLS teams play in stadiums that seat 75,000 for American Football games but have the upper levels closed for MLS, cutting the capacity to 30,000. (This is less and less frequent as we're seeing more MLS-specific stadiums being built here.)
You probably don't run into it too much in established leagues (i.e. European leagues), but maybe I'm wrong. For the game purposes, I guess it provides the opportunity to perform a zero-cost expansion if your team is in one of those stadiums, but haven't run into it yet.
It means HOW MUCH MORE CAN THE BOARD expand the stadium.
example.
You have a ground of 20.000, expansion capacity of 30.000 and USED CAPACITY 10.000
That simply means 30.000 - 10.000 = 20.000 hence your ground has 20.000 more seats to expand
Used Capacity 
Linear Mode
