Grandfathering is the first registration phase of Top Level Domains (TLDs), which were launched after their respective Second Level Domain was already active. Grandfathering allows the owners of SLDs to apply for their name under the new launched TLD before anybody else. For example, New Zealand and the UK decided to open up their name space and allow the registration of domain names directly under their TLDs “.nz” and “.uk” many years after they had launched their Second Level Domains (SLDs) “.co.nz” and “.co.uk”.
They used the Grandfathering Phase to make sure that the owners of domains under their SLD get the respective domain under their TLD. In other words, as owner of “octopoly.CO.NZ” Grandfathering allowed us to register “octopoly.NZ” before anybody else.