A lugged steel bicycle frame is a steel bicycle frame where the tubes have been bonded using lugs.

There are many ways to bond tubes together. For example, on this frame...



...if you look at where the tubes come together, you can see that they're held together by welds.

Here are a pair of lugged frames:



If you look at the joint on the red frame in the center-left of the image, you can see that there's a sort of sleeve around the two tubes where they come together. That sleeve is a lug. In the manufacturing process, a tube is inserted into the lug, and then tube and lug are brazed together.