Costume jewelry generally refers to cheap jewelry -- pieces made with inexpensive metals and imitation gems of glass, semiprecious stones, or even plastic.
The term was originally a bit more respectable than it is today. The is first recorded use of the phrase was in 1933, when it was used as a synonym for fashion jewelry. These were pieces that were not intended as heirlooms, but simply as fashion accessories that were chosen based on appearance as much, or more, than value. In wealthy circles these could be very expensive pieces, and might well use precious metals and gems.
Of course, while the rich might have exorbitant pieces of costume jewelry, the middle class didn't have such money to spend, so a lot of costume jewelry was cheap and mass-produced. This association has strengthened over time, to the point where most people use costume jewelry simply to mean cheap.