The word is usually used to describe someone who has done something silly and made theirself look stupid, usually under the influence of alcohol.
Can also be used to describe someone who is an idiot in general..
"...he's acting like Mel Gibson.... William Wally"
Also, A Character in a chain of books who hides among the pages... (in America see: Waldo)
Commonly confused with the word woolly (see: sheep)
Also, "Oh no! I can't find Wally!!!"