AU is a term often used by fan fiction writers. It stands for "alternate universe," meaning that the writer is writing a story based on a particular fandom, but doesn't necessarily follow canon.

For example, a writer may write fanfics based on The Phantom Menace. They may determine that a particular character that dies in the movie lives in their story. (No spoilers based on the assumption that it might be possible that someone might not have seen the movie.) That would occur in their alternate universe.