A terminal ray is a line that represents the end position of an angle in standard position, originating from the vertex of the angle and extending infinitely in one direction. It is used to illustrate angles on a coordinate plane, allowing for the identification of angle measures and their corresponding sine, cosine, and tangent values. The terminal ray is crucial for understanding how angles relate to trigonometric functions and can be visualized as the direction of rotation from the initial side of the angle.