Mixing medium is a glycerin-and-liquid mixture designed to turn dry products into moist products, or to change the consistency of already-moist products. You can use it with a pigment to turn the loose powder into something more like a liquid liner or paint.
MAC currently produces two versions of mixing medium- water based (eyesafe) and alcohol based.
A reasonable facsimilie of mixing medium can be achieved by combining glycerine and water. Just dilute with water, I think the proportions are 3 parts water to 1 part glycerin. The alcohol-based mixing medium (not for the eye area) can be made the same way (alcohol plus glycerin for something that dries quickly on the body).