Milagai means chili in Tamil, and podi means powder. This phrase could mean simply the red chili powder or the special, fragrant powder that is mixed with oil, and used as a side for idli/dosai. To differentiate, sometimes it's called dosai milagai podi in Tamil, or idli podi, or idli karam in Telugu (Telugu folks, please correct me if that's incorrect).
In any case, this is always the backup option for dosa/idli when there is no time to make an elaborate sambar or chutney. Most South Indian households will always have this podi on hand and it's delicious on hot, steaming idlis as well as dosais. My kids both love, love, love this! It is typically mixed with oil, preferably sesame oil or nallennai as it's known in Tamil. My girl loves it with ghee, and my son sometimes will make it like a dip with yogurt and dip his dosai in it. Anyway you eat, it's a hit!