ALO is designed to reduce excessive contrast by selectively adjusting areas of the image. In this way it differs from exposure compensation, which can be used to brighten or darken the whole image. ALO is especially useful when you're using flash or shooting backlit subjects because it can detect faces in the frame and brighten those areas to achieve a more evenly-lit result and reveal more detail in shadowed areas.
ALO analyses the contrast in captured images and applies a tone curve adjustment to modify both the shadows and highlights in order to minimise loss of detail in high-contrast situations. There are three strength settings to choose from: Low, Standard and Strong. Any of the ALO settings can be used at any ISO setting. It's also possible to switch off the ALO system.