Altcoin is the combination of 'alternative' and 'coin', referring to cryptocurrencies that were created as alternatives to bitcoin. Several thousand altcoins exist today with the most notable being Ethereum, XRP, and Litecoin.
Once Bitcoin proved itself as a functioning system, altcoins started to emerge with the first being Namecoin. Namecoin is not intended to be a currency like bitcoin but instead uses the immutable nature of the blockchain to create websites with a .bit domain and are stored on each computer in the Namecoin network.
Altcoins tended to tweak the parameters of the Bitcoin system, for example Litecoin reduced the block confirmation time and increases the supply and transaction speed while Dogecoin removed the fixed supply and introduced a slightly inflationary system.
Later on, altcoins gradually moved away from tweaking the Bitcoin code base and creating new cryptocurrencies from the bottom up. For instance, Ethereum is the best example since the team developed their own mining algorithm and blockchain architecture. Ripple is another notable example which uses the Ripple Consensus System instead of mining and Proof of Work.
Since bitcoin is the funding currency of the cryptocurrency market, has higher liquidity and enjoys a first-mover advantage, altcoins tend to exhibit more price volatility and lower trading volume. Altcoins rely on exchanges for price discovery, where exchanges may de-list coins based on low volume and weak interest, while they may add others based on high demand.
The innovation behind a coin and marketing is also important to drive adoption and demand. In the long run, altcoins will only survive if they implement useful features and manage to retain the interest of businesses, investors, and traders.