I'm pretty sure AUs are where everything is different, but similar characters, and AC are where one plot point was different, and changed everything.

I use AU for both scenarios, since I don't think I've ever heard the term "Alternate Continuity" before. I kinda prefer saying "Alternate Universe anyway, but that's just me.

I've always heard 'alternate universe.'

I think the comic book industry played some role in the establishment of 'alternate universe' as the dominant phrase. While the idea of a parallel reality is found in multiple genres, DC and Marvel arguably got the most mileage out of it. Both companies have their own multiverses. Marvel has their What If line and DC has their Elseworld's line.

The comic definition of AU covers both of the distinctions you mentioned. An example of the first type (different setting, same characters) would be DC's Crime Syndicate of America. An example of the second (running identically until point X) would be DC's The Nail.

Can't remember where I saw it, either, sorry.

Alternate Continuity does seem to make more sense for a divergent timeline, but as Sedri said, it's probably too late to change the course of fan terminology by now.

If it helps, I think I know where Alternate Universe came from: the theory that every choice has multiple outcomes, each of which branches off from the main timeline into multiple alternate timelines, is known as the Many Worlds Theory because each alternate timeline is a separate universe, although they may look the same superficially. So, an Alternate Universe fic is a fic set in one of those split-off universes, which is similar to but separate from the original canon universe after that splitting point. Hence, Alternate Universe.

Terry Pratchett describes this phenomenon as the Trousers of Time. Strange, potentially paradoxical things happen if you accidentally go down the wrong pant leg.

~Neshomeh

I think most people (at least in my fanfic circles) do. But, there is definitely a difference and if we could go back and change the way fanfic terminology grew, I'd rather like to use your two types instead. Sadly, it's too late now; no one would understand.

I've never heard the term "Alternate Continuity" before. Strangely, now that I have heard it, I'd completely switch the distinctions that you have there. Yes, I know that a "Universe" is bigger than a "Continuity", but it seems to me like an AC story would be how you have described AU.

but I personally use AU for both types of story. The distinction you draw between the two types is a useful one, but not one that I've seen used so far.

E.g. most people I've seen would describe a Boromir!Lives or the Fellowship actually getting over Caradhras as an AU, even though they fit your "AC" definition of following canon up to a given point and then diverging.