Look at a used brake rotor and you will often see a raised ridge or lip around its outer edge, standing proud of the smooth swept area. That lip is a wear indicator you can read at a glance. Here is what it means.
Why the lip forms
The brake pad only sweeps the main friction band of the rotor, not the very outer edge. As the rotor wears thinner where the pad rubs, the un-swept outer edge stays at the original thickness - leaving a raised lip. The bigger the lip, the more material the rotor has lost in the swept area. It is essentially a height difference between worn and unworn metal.
What the lip tells you
A pronounced lip means significant rotor wear and often that the pads are worn too, since heavy pad wear accompanies rotor wear. It is a cue to measure the rotor against its minimum thickness - see rotor minimum thickness and how to measure it. A big lip usually means the rotor is near or past its usable limit.
The lip and new pads
A large lip can also physically interfere when you fit fresh, full-thickness pads, and it can cause a ticking or catching as the new pad edge contacts the ridge. This is one reason many people replace rotors when the lip is heavy rather than reusing them - see do you replace rotors every pad change.
What to do
A tiny lip on an otherwise healthy, in-spec rotor is normal and fine to reuse. A large lip means measure the rotor - if it is at or below minimum, replace it; see when to replace rotors. Fit new rotors as a pair with quality pads and fresh hardware.