That can vary. Sometimes it's done like ownpool describes--a workshop on writing and research in conjunction with a thesis--but since you're given the choice between a thesis or senior seminar, it may be quite different in fact. Sometimes a senior seminar is just a more advanced course on a given topic in your major, something more like what you would take at the masters level, but all seniors. It might be more writing intensive than other courses, but not necessarily one big paper. I've seen it done both ways, and there may be other possibilities in subjects I'm less familiar with.
The best way of finding out what the senior seminar will entail is to ask the professor who will be teaching it. He or she can tell you. All anyone here can do is guess based on how their department does it, but it's not the same everywhere.