I assume it works the same as any other voltmeter - it's monitoring overall system voltage. If the car is off and the key is in the on position, it will be giving you battery voltage. If the car is running it's giving you overall voltage. The only way to get a direct alternator output reading is an ammeter. Normal voltage is usually around 14-15v, and a lower\higher voltage can signal a poorly functioning battery or charging system. The battery and voltage regulator usually buffers the charging system, and a wildly fluctuating readout can signal an issue as well. Its pretty normal for the voltage reading to fluctuate slightly as electrical draws on the system fluctuate - ie, the battery is recharged from starting, or the A/C is cycling on and off, while running the defroster, etc..
This is as good of an answer as can be easily explained in the forum. The subject is pretty complicated.
Voltmeters measure potential, ability to do work. Amps represent that potential doing work. Watts represent the actual work.
You can volts but little or no amps, Amps with low voltage, or any other combination. It basically depends on the load.
The alternator will generate a maximum voltage and it can source a maximum current. The battery is like a giant capacitor, it stores energy. The wires are really resistors.
If you start at one point and measure the voltage drop across each of the sections, working your way back to the start, you will find that it sums up to 0 volts.
Example: assume the alternator is floating at 14 volts and the battery has a shorted cell so it only goes to 12 volts. The other 2 volts are being disipated in the wires. Assuming that the two sides are the same it is 1V each. The wires would probably get noticably warm.
A batteries voltage is determined by the number of active cells. If one shorts, the voltage on a battery will drop. The alternator will try to hold the voltage up to charge the battery. This will cause a high current. The current will be limited by the max output of the alternator OR by the internal resistance of the wireing harness & battery.
It is a system and it all interacts. Make sense?