It include any trips using regional trains or city public transport (so, broadly, any train with an "R" or "S" in the name). That includes travel between cities, but it won't include the fast intercity trains (IC, ICE, EC) that most people use to travel longer distances.

So essentially you can get across most of Germany with this ticket, but for longer distances you'd probably be looking at a significantly longer and more complicated journey than if you just took a more direct intercity route.