What counts as a "project" when a potential employer asks a graduate about recent projects they have completed?
Speaking as somebody on the other side of that table, what industry is generally looking for is evidence that you can actually put the knowledge that you've acquired to use.  The sorts of skills that industry are looking for include the abilities to:


prioritize in order to achieve a larger goal, rather than getting bogged down in subproblems along the way.
work well with others as part of a team
follow through a complex piece of work to completion, rather than giving up after the "interesting bits" are complete
understand how your work fits into a larger whole and goals beyond "I was told this was what we were supposed to do"
synthesize together multiple different types of skills
estimate task difficulty, set a schedule, and manage unexpected problems as they arise
ability to understand the needs of the people who will put your work to use (sometimes jargonized as "customer focus")
determine when you need new knowledge or skills and take appropriate self-motivated steps to acquire these


All of these things are important ingredients in somebody who will be a good contributor to a larger organization, especially an R&amp;D organization where you can't afford to be micromanaging a bunch of poor performers.  Somebody who is strong in these abilities but lacks particular technical skills is often much preferable to somebody who has the technical skills but lacks the bigger picture "meta-skills."  That's because technical skills are a rapidly moving target, and a motivated self-starter can generally acquire new technical skills much more easily than a technically skilled person can become a motivated self-starter.

Research projects are often good places to find this, as are large personal hobby projects.  If you don't have any of these, class projects are a reasonable fall-back, though they will often be viewed with more skepticism, since they tend to be small in scope, have no "customers," and are often somewhat "spoon-fed."