To be precise, there were actually a number of restrictions placed upon Jews at the Fourth Lateran Council, which was held in Rome in 1215. The one that you are probably referring to is the requirement that Jews (and Muslims) living in Christian countries would have to wear distinctive clothing so that they could not be mistaken for Christians. This restriction is discussed often because of the fact that it reminds us how the Nazis made Jews wear yellow Stars of David so that it would be obvious that they were Jews.
When this Council was called, anti-Semitism had been growing in Europe. It had been, in part, fanned by the religious fervor connected to the Crusades. This can be seen as the reason for the restrictions placed on Jews. In addition to the clothing, they were not allowed to go outside on the last three days of Holy Week since they allegedly liked to insult Christians at that holy time. They were also not to be allowed to hold public office. Finally, they had to pay tithes to the Church for any property that they owned that had once been owned by Christians.
Thus, there were a number of restrictions, but the most commonly cited one was the requirement that they wear distinctive clothing.