It is offensive slang to mean that a woman is having a menstrual period.

Ummm... the most genteel way to say this is that "the rag" means a tampon.

"She is on the rag" means a girl is on her period, aka menstrual cycle.

I agree with you Richard that men use the term to demean women. All these comments are learning experiences for Dima and others.

Yes, it means a woman is menstruating, but I have heard it used more often to refer to the emotional state (grouchiness or moodiness) that often accompanies the hormonal changes of menstruation. It adds another dimension to the phrase's offensiveness; it might be used to dismiss a woman's legitimate complaints as only being caused by hormones.