An option select is a technique where the same set of inputs performs a different action depending on what the opponent does. It might also be used loosely to refer to any move (or option) that beats all or many of an opponent's options in a given situation.
The most common option select is doing an attack just after the timing where the opponent's frame trap buttons would come out. If they do their fast attacks, you're in a blockstun and your attack doesn't come out. If they do a slower attack or no attack at all, your attack comes out to challenge them. An example of this is doing a quick backdash into either a hopkick or a magic four.
Alternatively refers to universal answer to a given mix up even without the "different action depending on what the opponent does" part. For example a lot of characters have a move that just beats Master Raven d/f+4,4, usually the i15 hopkick that punishes if no follow up happens, and anti-airs if it occurs.