Lugging refers to driving at too slow of a speed in too high of a gear. For instance, driving at 10kph in 4th gear would be lugging in virtually any car. The engine and road speeds are relative to the particular car in question though - one cannot say that driving at say 1800 rpm will always result in lugging. An F-350 diesel will happily chug along at 60kph at 1800 rpm. A Honda S2000 will not be happy at all. When lugging is severe, the car will feel jerky and will have virtually no power when stepping on the accelerator.
I'm not an expert in car repairs but the damage most commonly associated with lugging is damaged crankshaft bearings as the loads they carry is apparently increased when an engine is lugging.
There is no benefit to lugging an engine so it is to be avoided. BTW this applies only to manual transmission cars as automatics adjust the engine speed automatically (!) depending on road speed.
