The Collaborative International Dictionary of English v.0.48:

Granulation \Gran`u*la"tion\, n. [Cf. F. granulation.]
   1. The act or process of forming or crystallizing into
      grains; as, the granulation of powder and sugar.
      [1913 Webster]

   2. The state of being granulated.
      [1913 Webster]

   3. (Med.)
      (a) One of the small, red, grainlike prominences which
          form on a raw surface (that of wounds or ulcers), and
          are the efficient agents in the process of healing.
      (b) The act or process of the formation of such
          prominences.
          [1913 Webster]

WordNet (r) 3.0 (2006):

granulation
    n 1: new connective tissue and tiny blood vessels that form on
         the surfaces of a wound during the healing process [syn:
         granulation, granulation tissue]
    2: the act of forming something into granules or grains; "the
       granulation of medicines"