It’s the directory where java was run from, where you started the JVM. Does not have to be within the user’s home directory. It can be anywhere where the user has permission to run java.
So if you cd into /somedir, then run your program, user.dir will be /somedir.
A different property, user.home, refers to the user directory. As in /Users/myuser or /home/myuser or C:\Users\myuser.
See here for a list of system properties and their descriptions.