During the Cold War the world was split in three places; the first world was Eagle Land and its capitalist allies, especially (but not limited to) NATO members, the second world was the socialist one with USSR leading the way with both its "satellite states" and some more rebellious (but still commies) pairs like China and Yugoslavia, and then the third option, the neutrals, the ones that were neither comrades, nor business partners; the Third World, also known as the non-aligned countries. note
The term was ambiguous to begin with as was more based on politics than in economy, but as most members of the Third World were poor and underdeveloped then it became synonymous of "poor country", even when places like Cuba, Laos or Vietnam were part of the second world and places like Austria, Ireland and Switzerland were (in theory) third world.
But the Cold War ended, the Iron Curtain fell and the second world disappears for all practical purposes. The usage of third world became obsolete in most academic circles and literature and nowadays is rarely used in official documents. Yet, in many media and in popular speech can still be used as a somewhat derogatory term for not the first world.
Of course, what constitutes a poor country may be subjective, as for example some people would refer to Latin America, North Africa and Eastern Europe as part of the third world, even when currently they are not considered as such by the international community or economic organizations.
A more Politically Correct terminology use today is:
- Developed country for post-industrial or highly industrialized countries (when the service sector provides more wealth than the industrial sector), a.k.a. high-income countries: the United States, Canada, Western Europe, Japan, Australia, New Zealand, etc.
- Developing countries that still have an industrial-oriented economy yet theyre close to be post-industrial countries (essentially the middle class of countries) a.k.a. mid-income countries: Latin America, Eastern Europe, Northern Africa, South Africa, China, India, Russia, Iran and several Arab and Asian countries.
- Undeveloped countries or least developed countries that are still mostly agrarian economies a.k.a. low-income countries: most of Subsaharian Africa, most of Indochina, Haiti, Yemen, etc. (and these are most probably the ones Westerners refer when meaning third world).
Another classification is the Human Development Index from the United Nations that as of 2014 was:
- Very high development: United States, Canada, Western Europe, Japan, South Korea, Saudi Arabia, United Arab Emirates, Australia, New Zealand, Argentina and Chile.
- High development: Mexico, Costa Rica, Panama, most of South America, Libya, Algeria, Tunisia, Eastern Europe, Russia, China and Iran.
- Medium development: India, Mongolia, Indonesia, most of the Indochina region, most of Central America (except the aforementioned Costa Rica and Panama) and most African countries.
- Low development: most of Subsaharian Africa, some parts of Asia and Haiti in the Americas.
Finally, it's worth mentioning that nations like China, India, Mexico, South Africa and Brazil are officially considered newly industrialized countries by some scholars, yet, wont be unusual for many people in the First World to call places like Mexico, Brazil or India third world, while on the other hand people in Latin America or China may refer to African countries as the third world.
At the end, as with people, the terminology you use to classify countries based in things like income and development is highly subjective, as for example living standards for people in Latin America or Mid East can be poor for someone from Scandinavia or the United States, but can be rich for people from Haiti and the Congo or vice versa, after all, an African kid spending his time playing in open fields and prairies would probably be classified as poor while a kid spending most of his time inside an apartment building in a big city would be classified as rich.