Alpha is the excess return of an investment beyond what its market exposure alone would predict: the slice of performance attributable to manager skill rather than to riding systematic risk.
The bracketed term is what the fund should have returned given its beta (its sensitivity to benchmark movements); whatever is left over is alpha. Positive alpha means the manager beat that expectation, zero means the fund merely delivered its market exposure, and negative means it underperformed even after accounting for risk taken.
The number is only as good as its assumptions. It presumes the benchmark genuinely represents the fund’s risk profile, so a flattering benchmark manufactures alpha. It also isolates only systematic risk: unsystematic risk, volatility, and drawdown are invisible to it, which is why it sits alongside Beta in Finance, the Sharpe Ratio (volatility-adjusted), and the Treynor ratio (systematic-risk-adjusted) rather than replacing them.