From AMS Glossary
A signal that is used to decide which subsets of data to include in an analysis.
For example, an aircraft flying through a convective boundary layer will fly sometimes within thermal updrafts and sometimes between thermals. Positive vertical velocities that exceed some threshold could be used to indicate when a measurement is being made in a thermal. By averaging only those temperatures that were obtained within thermals as defined by the indicator function, an average temperature for the thermals can be found. This method of using indicator functions to select portions of a larger dataset is called conditional sampling.