This is a generic term used to cover all kinds of grains which are used in pet foods. Cereals are a good carbohydrate source and provide necessary dietary fibre.
However, cereals vary in their nutritional value and in their digestibility. The less digestible grains tend to be cheaper (as you would expect).
When the term "cereals" is used as a dog food ingredient, the actual grain used can vary from batch to batch. This allows manufacturers to take advantage of market prices, using which ever grain is cheapest at even given time. The concern is that the cereal isn't chosen for the benefit of your dog but for the benefit of the manufacturers' profit.
The use of this term makes it difficult for dog owners whose pets suffer from allergies to avoid the allergen for two reasons i) You don't actually know what's in the food as the ingredients are not individually named ii) the ingredients could change from batch to batch
Cereals can also be used as bulking agents. These are ingredients that provides a lot of bulk to the product but is of little nutritional value and also cheap. Some products can contain up to 80% cereals!
Some pet food manufacturers try not to use any cereals at all, using fruit and vegetables instead. This is a good alternative, however that is not say that all cereals are bad for dogs. Indeed, the more digestibile grains such as rice have many benefits for dogs. The key point is that manufacturers should state on the packaging which cereals are contained in the product - isn't that what labelling is there for? Then you can make a decision on what you want to feed your dog rather than what is cheapest.
Tip: Choose products that name the cereal used such as rice which is highly digestible
Avoid: Products that use the generic term "cereals" or "cereal derivatives". These are usually contain bulking fillers that have little nutritional value. Cereals such as sorghum or corn are not very digestible.