Alignment represents your character's basic disposition. There are three choices: good, evil, and neutral. In the game's mechanics, this is represented by a scale ranging from +1000 to -1000. When you are at +1000 this means that you are good aligned, when you are at -1000 this means you are evil aligned, and when you are at 0 this means you are neutral. You can change your alignment by killing good or evil aligned mobs. This will raise or lower your alignment incrementally.
The different alignments can affect whether you are allowed to wear certain pieces of equipment. If you are of good alignment and try to wear a piece of equipment which is anti-good, you will be zapped, which means the object will fall to the ground. The same occurs if you are evil and you try to wear an anti-evil piece of eq or if you are neutral and try to wear an object flagged as anti-neutral. You can also be zapped during battle if you are fighting a mob opposite of your align.
When you create your character, you can determine what alignment you want to start out with. This value isn't set in stone and may change as you play the game. Certain classes and races are restricted in regard to their alignment. For example, a Demon must be evil (-1000 to -250), a Paladin must be good (250 to 1000), and a Drow must be evil (-1000 to -250). When creating your character, you are not allowed to choose outside this range. This doesn't mean you cannot deviate outside of this range while playing. However, if this does happen, there will be repercussions.