What does ancestral mean in town options in SP?

It means that when the last remaining household member dies, or rather in anticipation of that event, SP will do everything it can to transfer ownership of the property to a surviving relative. If there are no surviving relations who are residents of that world and who would be deemed suitable to move into it (pass inspection, not have to split up entire households in the process, etc.), then the designation evaporates with the sim's eventual death.