Good question.
Unfortunately, it is used in more than one way. The most common is a highly resolving high end system.
I used to have a system that I was forced to call my reference system because it was so revealing. The venue and mastering was so obvious instantly on hearing a cut. I felt obligated to call it my reference system. I had it for a long time and used it as a reference for components and my other systems. Interestingly, I now have a much better system, and I do not call it my reference system. It simply sounds like music. The venue and mastering are not unnaturally highlighted as they were in my reference system.
Technically, any system can be a reference system if it is your semipermanent system you use to make judgements on new (to you) components or against other systems. This is a really useful way to think about your system.
Professional reviewers have their own system, which they know really well, and which they will swap components in order to assess them. This is their reference system... inexpensive or expensive.
Reference is critical in assessing something for which there is not absolute reference. Since you can’t bring in a symphony to your listening location and compare it with your system... a reference is a very useful.