Reactor-grade plutonium is found in spent nuclear fuel that a nuclear reactor has irradiated (burnup/burnt up) for years before removal from the reactor, in contrast to the low burnup of weeks or months that is commonly required to produce weapons-grade plutonium, with the high time in the reactor (high burnup) of reactor-grade plutonium leading to transmutation of much of the fissile, relatively long half-life isotope 239Pu into a number of other isotopes of plutonium that are less fissile or more radioactive.
Thermal-neutron reactors (today's nuclear power stations) can reuse reactor-grade plutonium only to a limited degree as MOX fuel, and only for a second cycle; fast-neutron reactors, of which there is less than a handful operating today, can use reactor-grade plutonium fuel as a means to reduce the transuranium content of spent nuclear fuel/nuclear waste.
The difference is important in assessing significance in the context of nuclear proliferation. Reprocessing of LWR (PWR or BWR) spent fuel recovers reactor grade plutonium (as defined since 1976), not fuel grade.
The DOE definition of reactor grade plutonium changed in 1976. Before this, three grades were recognised, the change in definition for reactor grade, from describing plutonium with greater than 7% Pu-240 content prior to 1976, to reactor grade, being defined as containing 19% or more Pu-240; coincides with the 1977 release of information about a 1962 "reactor grade nuclear test".