Simulation speed is a value to measure the flow of time perceived by your client. A simulation speed of "1.0" equals to the simulation running in real time. If the simulation speed drops, the effect commonly described as "rubberbanding" can be perceived. Time slows down in the local simulation of the world and this leads to slow motion effects in varying dimensions. For example, at a simulation speed of 0.3 one could have the feeling to not being longer in space then playing a underwater simulation or swimming through jelly.
Simulation speed is in the opposite to for example FPS, which is linked to the graphics card, a value that is directly linked to the computation power of the local client CPU.
You can see the simulation speed of your client by pressing "Shift+F11" in game.
When playing multiplayer, simulation speed, commonly also termed "sim speed" in chat, is the main value used to compare client performance.