Is it still considered research if my goal is not to publish? I began working on a fairly complex project with a few friends a few months back. It began as a hobby project, but became more serious as we realized how effective it may be. We collaborated with a professor a fair amount, and he registered us as 'undergraduate researchers' with the university. He is listed as our official mentor, but just gives advice when we have questions rather than steering the research.

We have no intention of publishing, and we are not even sure if our research is novel. We do incorporate very rigorous topics in our project, and I am wondering how I should describe this to Grad schools. "Undergraduate Research Project" seems misleading, but it seems like the most apt way to describe it. Thoughts?
Whether or not you publish, and whether or not it's novel, your effort certainly satisfies all reasonable definitions of 'research project'. You may use the term with impunity.