Craft and Magical Names
It is common practice among the practitioners of magic to take a new name, a user handle of sorts, which is used in most dealings with the magical community. When this occurs in witchcraft, it is called a 'Craft Name.'
The practice is based on several occult principles which deal with the power of Naming. The idea is that by knowing the tue name of something, you can command it or gain power over it. It is for this reason that the ancient true name of the Gods (JHVH included) was a closely guarded secret. (JHVH is an abbreviation -- the true name was known only to the High Priest in the Temple at Jerusalem and passed to his successor on his deathbed. Since the destruction of the Temple at Jerusalem, the name of the Judeo-Christian God has been most likely lost.) Since a magical practitioner will be dealing with the Unseen World and several entities which are not normally encountered by exoteric humanity, it is common sense and good magical discipline to take on a Craft Name.
Practical Uses Of a Craft Name
For one thing, the use of a Craft Name in association with Circle or Lodge helps to trigger the psychological stimulus/response patterns which will build an association with ritual. In magical pursuits, this is very important because the sooner you can get yourself into the proper frame of mind the more time you can spend on the magical Work itself, and less on getting there. For another, the shift in nomenclature also helps to separate out the different behavioral modes and places surroundings and environments into context. This is important for maintaining a functional existence, since it can be most inconvenient to operate on the magical paradigm while trying to earn a living as a court stenographer, for example.
In the specific case of modern witchcraft and Wicca, there is a folkloric reason for the use of a Craft name as well. Practitioners of witchcraft and Wicca like to remember the eras of persecution and attribute the use of a Craft name to a smokescreen effort to help conceal the identities of the other witches in coven, so that your Working companions would not be betrayed even under the threat of torture. This is obviously a romanticized bit of folklore, since it's hard to imagine Working with others, often skyclad, in such an intimate setting as a coven and not knowing who they were in their mundane lives. Not to discount the gross persecutions and injustices which were historically performed in the name of erradicating witchcraft, but the Craft Name itself seems to be much more practical for the psychological cues and connotative contexts than as a means for preserving secrecy from covenmates.
Craft Names and Dabblers
Nowadays, with the sensationalization of witchcraft and Wicca in the press, it is somewhat common to find all manner of people donning Craft Names. While part of this is due to the quick spread of the Neo-pagan revival movements and a greater degree of public acceptance of occult studies and phenomena, there tends to also be a profusion of dabblers and thrill-seekers who glom onto all of the mystique and romance associated with the sensationalized 'idea' of witchcraft who do not take the time to investigate the deeper substance to be found in witchcraft itself.
The Craft Name that a person chooses can be used to help sort out some of the dabblers from the serious. In general, a big warning sign is the use of the Title of Lady or Lord in front of the Craft name, without being associated with an American branch of one of the British Traditional Witchcraft Traditions. (In Britain, oddly enough, no one would dare use the title Lady or Lord in a Craft Name unless they were born to that rank, since impersonating nobility is rather illegal.) Even when dealing with the American branches of the BTWs, it is considered gauche among BTWs to use the honorific outside of a coven setting or with cowans.
Another red flag to watch for with the Craft Names of dabblers is to find a name which is chosen from a cultural setting that is not generally associated with the cultural witchcraft heritage that the person professes to follow. An example of this would be 'Lady Runs-With-Antelope' who claims to be an Italian Strega. Or 'Amon Ra' who practices Celtic Witchcraft. This is not to say that a bona fide witch or magician may not have an out-of-place or out-of-cultural-context Craft Name, but the chances are that there is a very good reason for the non-sequitur.