A tied cottage is a house that serves as part of your wage. For instance, if you work as a park ranger - gardening in the park, providing security, opening and closing the gates at set times, minding any animals associated with the park, and so on - you're liable to be given a house inside the park.
Since you don't have to pay rent, your wages are lower in proportion.
The disadvantage is that you can't save to buy a house, and the fact that you have a secure place to live means that you're liable to let this slip, especially as your wages are relatively low to balance the "free" house.
Vicarages are another example: when the vicar dies, his widow and children are liable to be turfed out so the next incumbent can move into the house with his or her family.
It's a potent weapon in the hands of a paternalistic or bullying boss.