In stricty objective terms, three out of five is either above average or neutral. If you were taking a test it would be a passing grade, if not necessary something to stick to the refridgerator door.
In terms of a book I have always taken it to mean "better than meh" or "I don't regret the time I spent reading this book". I would even go as fair as to suggest that it equates to "good" on a scale of bad, fair, good, very good and excellent. And lets be honest, it is a rare book that exceeds an average rating of 4 on GoodReads.
It may be overly fashionable to blame everything on Amazon, but I do not think that it helps that they not only list 3/5 under "negative reviews" but count them as such against vendors--leading some vendors to beg customers not to post less than 4 or 5 unless they want the company thrown off Amazon and flogged with razor wire into the bargain.
Everyone wants to write not just a good book, but an excellent one. But at the end of the day shouldn't having written a good book be good enough?