What is custom metadata type in Salesforce?

Custom metadata was introduced generally in Summer 15 release. Before Custom metadata type, we were using Custom settings of List type. Problem with custom setting was that, during migration or in packages, data were not migrated. We had to either use data loader or some API to create initial data. However, if we package custom metadata type or migrate it, data will also be migrated along with it

Custom Metadata Types (CustomObject)
Represents the metadata associated with a custom metadata type.
For more information, see the Custom Metadata Types Implementation Guide.
File Suffix and Directory Location
A custom metadata type is defined as a custom object and is stored in the objects folder. Custom metadata types have a suffix of __mdt (instead of __c for custom objects). Custom metadata type field names have a suffix of __c, like other custom fields. Custom metadata type field names must be dot-qualified with the name of the custom metadata type to which they belong.

Names of custom metadata types must be unique within their namespace. All custom metadata types belong to the CustomMetadata namespace and can optionally belong to a second namespace. In your organization, you can use custom metadata types with your namespace and also other organizations’ namespaces.