What is meant in biology by the term "evolved"?
"More evolved" is actually meaningless in all contexts. See terdon's answer for a good explanation.

In the strictest sense, an organism can be said to be more divergent than another when comparing both to an outgroup, such that there is an inferred most common ancestor in reference to which to make the comparison. In this case, one organism is more divergent if there are more changes to this organism than the other, relative to the reference point.

However, when speaking, many people get lazy, and use "more evolved" as shorthand, wishing it to mean something like "more divergent". Even "more divergent" is meaningless in the following contexts:


when there is no outgroup understood
when describing increasing complexity (obligate parasites have lost complexity and have had more evolutionary changes than their non-parasitic relatives) 
when the outgroup is poorly chosen. Mammal vs reptile comparisons should not, in general, use prokaryotes as the outgroup.


Edited 2013/12/06 to reflect the precision in the answer by terdon.