It means what subjects will be debated, and what type of arguments will be allowed.
That is, if a politician can set the terms of the debate, he can prevent his opponents from bringing up subjects that would be disadvantageous to him.
For example, suppose that party or faction A wants to increase taxes to fund some program they consider important, while party B wants to decrease taxes and thinks this proposed new program is not worth spending a dime on. Party A is worried that if both sides present their arguments, the voters will prefer a tax cut to a tax increase and won't be impressed with the value of the new program. So if A has a good, charismatic leader, he may try to "set the terms of the debate" to be "how much of a tax increase do we need to be able to carry out this vital program". If he can get the public thinking that that is the question -- not "do we want to do this at all" but "how much is a reasonable cost to do it", and he can get the media to present the debate in those terms, then he doesn't much care who wins that debate. The fact that the question is "how much increase" rather than "increase or decrease" means that he has already won: he will get an increase.