Yes, the Terrace refers to the Memorial Union Terrace. The Memorial Union dates from 1928, and the back terrace opens to Lake Mendota. There are colorful "sunburst" chairs by the hundreds, and it is THE gathering spot for students, alums, visitors and residents alike. The Union itself features, among a million other things, homemade Wisconsin ice cream and Der Rathskellar (think German beer hall with pub food). Pitchers of beer from the Rathskellar on the Terrace are a favorite, plus sailing, plus swimming, plus lakeside movies, summer stage with live music 5 nights a week. It's pretty awesome.
Here's another view, this time of the back of the Union, from Lake Mendota: