The lost footage was footage that was cut from the original film, it never aired in cinemas, but some of it got into the Laser Disc version and some VHS.
In the original run, the movie had a few more scenes with Sharptooth, that at the time were considered too violent. The biggest change however was that in the original cut Littlefoot found the Great Valley all by himself and then went back to rescue his friends from the Volcano, like in the book.
Other cut footage includes the gang meeting Spike and Sharptooth getting hit by a thorn in his eye.