I heard the term "milestone" used a lot while I was working as a co-op student at Amazon.com and other places, and I've also heard it in graduate school, but I realized a couple of months ago I don't really know what it means. So I asked google. There are some conflicting ideas about what it should mean it seems, but here's the one I like best, synthesized out of a few:
A milestone for a project is a measurable set of conditions such that, when they are fulfilled, we can say that progress has been made.
By "measurable" I just mean something that is objective, inarguable. "The finished essay, ready to submit, is sitting printed out on my desk." "All the papers I need are on a list on a piece of paper." "50% of the assignments have a final mark written on the front" etc
By this definition, it's definitely possible to have more than one milestone you're working on at once, and the completions don't have to come in a set sequence. However often there will be dependencies, so that one milestone can't be reached, or even started on, until another one is finished. There may be a milestone that represent a whole phase of a project, so that no more milestones can be reached until that one is, a bottleneck.
A milestone can have a date associated with it. All deadlines are milestones (but not all milestones are deadlines). For your own milestones, you could reward yourself for achieving them, or penalize yourself for not hitting the date on one. But at a minimum they should help you to get a sense of where you are in the progress of a project.
I tried to put this into practice recently with a milestone chart for my psyc 917 project, showing the milestones for the different sections and their dependencies. I didn't really use this effectively - as you can see only one circle is crossed out - but I think that was more due to other project management problems on this assignment, not that there's something wrong with the principle (though one issue: need to be able to change the chart around more easily - at least leave lots of free space) Read it from left to right, so that a circle on the left connected to one on the right means the left milestone must be accomplished before the other one can.
(larger version here)