Merchandising is an extremely important aspect of filmmaking, as it allows for an additional source of revenue and serves as another method of marketing your film. Merchandising is the process of selling memorabilia that features elements of your film, and merchandising rights are the rights that allow you to do so. Merchandise can include toys, clothing, printed materials (posters and calendars,) and any other item containing features directly from your film. 

Typically, the film production company owns the primary merchandising rights, unless those rights are specifically assigned to another party. If you are an independent filmmaker, you will most likely retain those rights.

The distribution rights are then licenced to a third party, such as a toy manufacturer or clothing brand, to produce and sell the merchandise. You will then receive a percentage of each sale made.