I think what is implied by an alternate reality is that it does not happen in the world(s) of Final Fantasy, that there is connection to FF and KH. This arises because people often times try to put KH in some wierd relation to the FF games, like it happens before FF VII and other ridiculuous theories. So I think the concept of KH happening in another reality is to emphasis the point that there is no corrolation between Kingdom Hearts and Final Fantasy.