Broadly speaking, it refers to one's capability of being smart in a "handy man" field.
Your tire is flat and you have nothing to fix it? Take a toothpick and hot glue. That's system D.
You have a bottle of wine but nothing to open it? Put the bottom in your shoe and rub it against the wall. That's system D.
Nowadays you can use *system D" for any subject where you demonstrate the capability to overcome problems not using "book" solutions.
The term got it's roots during and after the war in France, where you had to be able to find these kind of solutions in a country where everything was broken.