I think it means a person who stands in who is the relative height of the character that is being played. Elijah Wood is short, but he's not Hobbit-sized. They might be able to do some things with camera angles, tricks, etc. But in some shots, I reckon they need someone really short to make it look realistic.

According to his site, Kiran had to play all the main hobbits at one time or another. His body shape seems to be more normally proportioned than with many dwarves.