It adds a 12 x 12 building area to the Graveyard. Graveyard Keeper III also unlocks Flower Bed I.
The Graveyard has 20 plots for areas: 4 from the start, 4 more with Expand graveyard I, 6 with Expand graveyard II and 6 with Expand graveyard III. The Grave Area I it starts with stands on one of the first 4, cannot be removed and does not count towards the build limit of 2. At most it holds 70 graves, or 16 monuments, or 14 columbaria and crypts (each number with every area kind that has them built to its limit).