The term "paternal grandparents" refers to the grandparents on the father's side of a person's family tree. According to Dictionary.com, a person's paternal grandparents are his father's parents.
"Paternal" is used to refer to anything pertaining to one's father. "Maternal" refers to the mother, so while a person's paternal grandparents are on the father's side, the maternal grandparents are those found on the mother's side of the family.
People also use the terms "paternal" and "maternal" to refer to other members of a family tree, such as a maternal aunt or paternal cousins. This provides an easy way to determine how people are related to one another.