This a reference to a feature that “quake live” has adopted.
A damage indicator would be a small number popup beside a enemy you do damage to. In other words you know how much damage you are dealt to a person from your bullets or explosives.
Numerous times I find it frustrating when I can’t see the damage your doing players and I think adding it might encourage players to get head shots as they will see they aren’t doing as much damage.
Here’s what the damage indicator looks like in quake live.