We use the term material world to mean this world, where things are made of matter. Matter includes solids, liquids, gases, radiant energy, and space. The Bhagavad-gita explains that there's an additional category of matter–subtle matter–which includes mind, intelligence, and false ego, or the mistaken idea that the self is also material.
We often say "material world" as opposed to just "world" because so much evidence in Vedic literature suggests that this world isn't the only world there is. Many statements point to an existence beyond this one, a spiritual world made not of temporary elements but of even more subtle energies: permanent reality, enlightened knowledge, and complete happiness.
(The painting shows Krishna expanding Himself into the form of Maha- Vishnu to create the material world.)