A line of demarcation means a boundary line between territories in short and simple terms. As this terminology relates to hair texture, when hair is well-conditioned, then the lines of demarcations show up. In this picture, how many lines or variations in texture do you see? Two lines of demarcation and three variations of texture? Then you are correct! There seems to be a curly base (Type 3), a wavy mid-point (Type 2), and straight ends (Type 1). The lines of demarcation are cutting points if the client desires to have less variation in texture. How would you get three variations of curl patterns down one strand of hair? If you start with a Type 4 overly curly head of hair, then texturize and straighten it with the ionic flat iron on multiple occasions, then you can end up with variations in texture.
In this picture, there is only one clear line of demarcation. This line separates the thinner, straighter area and the denser, curlier area.