The title refers to the (you got it—yellow) wallpaper in the room where the protagonist spends pretty much all of her time. Since she's essentially trapped in her room with nothing to do, she spends her time staring at the pattern of the wallpaper, becoming more and more obsessed with the paper.
But that's not all. The protagonist also imagines a woman trapped behind this fugly yellow wallpaper. This transforms the symbolism of the wallpaper—and the story's title—from simple bad taste in terms of interior decoration to something much more sinister: the idea of being trapped. Both the women in the wallpaper and the narrator held in the solitary confinement of the "rest cure" are held captive.