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I've heard the term many times, what does it represent?

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Kirigakure, the Village Hidden in the Mist, is know as Bloody Mist Village due to the cruel nature of their academy’s graduation exam. In order for their academy student to graduate, they had to fight to the death and only those who survived would move on to being a shinobi.

Village of the Bloody Mist

Over time, the village became infamously known as the "Village of the Bloody Mist" (血霧の里, Chigiri no Sato) for a cruel reason — in the Kirigakure Academy, students wishing to graduate (only members of the lowest caste in the novel)had to fight to the death, and only those who survived could advance to the ranks of the ninja

However, this gradation method was eventually discontinued after Zabuza slaughtered an entire graduating year of students

The Academy's graduation methods were discontinued after Zabuza Momochi, not yet a student himself, killed an entire year's graduating class

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