What if Anastasia Romanov was saved from the firing squad by fairies, and came back to reclaim her throne with the help of otherworldly warriors? What if Alexander the Great's empire stayed intact and was ruled by kings with dark magic and deadly chimera armies? What if mermaids sunk the Titanic in order to save their captive queen who was being shipped to a zoo? These are the types of questions that are the basis for the Fantasy subgenre called Alternate History.
This subgenre shows our world, but with a few big differences. Alternate History on its own requires that the outcome of some event in the past is changed, so that all that comes after that will deviate from the historic timeline we know. However, when it is used as a subgenre of fantasy, this means that magical elements or creatures are also added. In other words, the subgenre gives the freedom to do things like turn the tides of historic battles so that winners are now losers due to the brawn of giant troll soldiers.
Now, as the name suggests, Alternate History stories must have some element of the past in their setting. This does not mean that the story being written must be set in the past (although a large proportion of authors do choose to make it historical). In fact, it can have a contemporary setting or even a futuristic one. However, whatever changes are present in the contemporary or futuristic setting must have come about because of a change the author made to our historical timeline (such as Edison being killed before he could harness electricity, thus making the year 2017 a place where people are still living off the land). Regardless of the time period chosen, it must be different from the matching period in our time as the result of some magically influenced change in history.
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The themes of Alternate History stories focus on examining the "what if"s of history, and showing how changing a moment in time could bring about a better or worse world. It is, essentially, a theme of the "butterfly effect". That is, change one thing in the past and it creates a tidal wave of changes that can make what comes next unrecognizable to us. It also can examine what a certain point in history would be like if magic was present, thus presenting new and interesting solutions or problems.
