What exactly does Alacrity do?

Solution 1:

An example of a casted ability is Mortar Volley for the Trooper (Death from Above for the Bounty Hunter). Without any Alacrity, that move takes 3 seconds to complete. With 5% Alacrity, it will take 2.85 seconds ((1 - 0.05) * 3).

Since the 3.0 patch, Alacrity affects virtually everything: Cooldowns (internal timers, the Global Cooldown (GCD), and ability cooldowns), cast and channel times, tick speed of channels and Damage over Time (DoT) abilities, etc. As such, 1% Alacrity is essentially a 1% increase in Damage or Heals Done per Second (DPS/HPS). This is a bit simplified, since using Alacrity means giving up other stats you could use instead, but overall Alacrity is now very useful.

Solution 2:

No, that is not how that works.

If it did, that would mean 100% alacrity turns your GCD and other Cooldowns into thin air. You would be a god capable of killing anything instantly.. because for all the game cares you could unleash a billion attacks in a millisecond.

Alacrity increases the speed at which you operate. It doesn't Multiply, it devides.

That means a 3sec ability would not be done 5% faster flat out, but rather be done at 105% of normal operating speed. Thus turn the ability into 3/1.05=2.857 seconds.

Doesn't seem like a big deal with these small cooldowns, but once you apply it to a 3 minute one you'll see there is quite a difference between the 2 manners of calculating it. And I assure you mine is the right one.