Activity tracing is part of a feature that was initially introduced with WCF, named End-to-End Tracing. Its underlying implementation, however, is baked into the XmlWriterTraceListener and does not depend on WCF in any way. Currently it's only supported in the SystemDiagnostics implementation.
So what is activity tracing? It can be summarized as:
Activity tracing are special traces that record the processing flow across threads, processes and even machines, allowing for later correlation
The activities are identified by an arbitrary guid, which is placed in the ambient singleton property Trace.CorrelationManager.ActivityId. This ID flows with threads, and in the case of WCF, you can make it flow across processes and machines. This ID must be logged somehow, however, to be picked by a tool that can correlate the traces. For that purpose, this ID is tracked via...