It's so you don't cut your fingers...
Either that, or it describes the transition from clear to dark, though one manufacturer's hard/soft is not the same as everyone elses. HiTech's hard cut is pretty hard!
Edit: the hardness of the transition also varies a lot with focal length (grads are virtually invisible on longer lenses) and to a lesser extent with f/number, and even how far the filter is held in front of the lens.