The term "microservice" in architecture design refers to an approach where applications are structured as a collection of small, independent services, each responsible for specific business functionalities. Microservices communicate over lightweight protocols, allowing developers to deploy, scale, and update each service separately. This architecture supports greater flexibility, enabling teams to use different programming languages and technologies for different services. It also enhances resilience, as failure in one service does not impact the others, ultimately leading to faster development cycles and improved system reliability.