A Hall Costume is a costume worn by convention members while they wander the halls and attend panels. These are typically not eligible for entry into the Masquerade, but there may be awards given for particularly creative and original hall costumes.
In general costumes worn for the Masquerade are original works, and are worn either by the creator or by models chosen by the costume creator. Often (particularly for major conventions) they must also have not been entered in other Masquerades or only in smaller regional events.
Hall costumes on the other hand can be original, purchased, hired from fancy dress hire shops or can be the same one you've worn for the last ten years and won prizes with before. As such, a particular Hall Costume may not qualify for particular prizes (workmanship, original creation etc.).
Some conventions award prizes based on a public vote. One particular system (used in the UK) is to give each convention attendee three Hall Costume tokens in the membership pack. When you see a costume you want to vote for, you hand the wearer one, two or all three of your tokens. The costumer hands in all the tokens they collect, and whoever has the most tokens wins. To simplify the administration and to make it fair, there is usually a particular day and time in the schedule where people are encouraged to wear a Hall Costume if they wish to compete for the prize. E.g. 10am to 6pm on Sunday of the convention, and all tokens must be handed in to Ops by 8pm. This means the costumer knows which day to wear their most stunning costume, and doesn't have to keep it on 24 hours a day for the entire convention.