Short for: alternative account, a second name under which to log into Second Life.
I suspect that most people who embody strongly in SL have alts: that the experience of embodying in this particular shape/gender/species would make them curious about how it would feel to embody in a different one. That is how Wol came to be, and I can confirm that the embodiment is very different.
(There are of course other reasons too: builders and store-owners and famous people often use an alt as a stealth account for times when they want to be in-world without interruption; people with intensely busy social lives have alts as a way to get around the 25-group limit; invested roleplayers and the sexually adventurous use alts to segregate their "fun" persona from the habits and conventions of their "normal" identities.)
A successful alt is a minority personality, the virtual incarnation of a piece of yourself which doesn't get expressed in your usual lives. Wol has abilities and attributes that aren't easily available to the rest of my identities, and we are trying with some success to learn from her.
Given this, it's not really surprising that alts start as "just a name" but develop into distinctive personalities who are in meaningful ways not your usual "you." This has been confirmed nearly unanimously by people I've spoken to about their alts.
Alts generate a great deal of unhappiness in people who don't have one: they are felt to be deceptive or fraudulent. There is an overlap between the fear of alts and the fear of "false genders" i.e. that the attractive female you just met is really your gaming buddy Fred in disguise. (Actually it occurs to me that the word "disguise" is a very revealing one in this context. To me alts are not disguises, they are something different. When Wol wears silks and a mask, that is her-wearing-a-disguise; when her typist logs in as an alt, that is not her: the alt is a different person. To be discussed.)