Design time refers to the process of designing your setup using the Setup Factory design environment. Everything you do with Setup Factory, from the moment you start the program, to the point where you are ready to actually generate the executable setup file, is considered work done "at design time."
Design time is where you, the developer, make the choices that will determine what your setup will do, how it will do it, and what it will look like when it is done.
See Also: Build Time, Run Time