Subdomain takeover occurs when an attacker gains control of a subdomain belonging to a legitimate domain of the target. This often happens because the subdomain's DNS record hasn't been properly de-provisioned or points to a service that is no longer in use. Hostile subdomain takeover is a term coined by Detectify Security Researchers (read the original writeup). It refers to when an attacker takes control of a service no longer in use but that the target still has a DNS record pointing a subdomain to. As the DNS record points to a vacant service, this is also referred to as dangling DNS entries.
The severity of a subdomain takeover is very contextual. The takeover is usually only considered severe if it compromises other systems or gives direct access to user data (such as cookies).
Spinning up a fake page on the compromised subdomain for phishing purposes is bad enough. Consider an attacker getting control of one out of many Name Server (NS) delegations for the root (apex) zone. Then the severity can get worse than the most critical form of SQL injection. This can, over time, give the attacker access to all traffic destined for the vulnerable domain, including all its subdomains.