It could mean many different things. I think of myself as a moderate libertarian, for example. Meaning that as we move (hopefully) along the libertarian vector, I would rather go slowly, stick to a pragmatic approach, and double-, triple-check on actual consequences of every particular change.
Some people end up in the "moderate" category simply because they consider one issue at a time, without any overarching political philosophy to guide them, and end up with an assorted collection of positions that makes them look "neither here, nor there". Or maybe they do have a political philosophy, we just don't quite understand it.
Then again, there are those who have this superstitious notion that "The truth must be somewhere in the middle". As in:
Extreme position # 1: We must kill all bicyclists.
Extreme position # 2: What?! We must not kill any bicyclists.
Moderate position: Guys, guys. Can we agree on killing 50% of them, and end this petty partisan squabbling?