Since the end of World War II, it's used by Northern Italians to call immigrants from the South. It derives from the world "terra" (land), because while the North was industrialised, the Southern economy was still based on agriculture and landowning.
"Sono nato a Palermo, vivo a Milano solo da un paio d'anni." "Oh, allora sei un terrone!"
"I was born in Palermo, I've been living in Milan just for a couple years." "Oh, so you're a terrone!"