Milestones are "targets" that you plan to get a bug fixed by. For example, you have a bug that you plan to fix for your 3.0 release, it would be assigned the milestone of 3.0.
Milestone options will only appear for a Product if you turned on the "usetargetmilestone" parameter in the "Bug Fields" tab of the "Parameters" page.
To create new Milestones, and set Default Milestones:
Select "Edit milestones" from the "Edit product" page.
Select "Add" in the bottom right corner.
Enter the name of the Milestone in the "Milestone" field. You can optionally set the "sortkey", which is a positive or negative number (-32768 to 32767) that defines where in the list this particular milestone appears. This is because milestones often do not occur in alphanumeric order For example, "Future" might be after "Release 1.2". Select "Add".