From "Programming the 8086/8088" by James W. Coffron:
AF auxiliary carry flag. If this flag is set, there has been a carry
  of the low nibble to the high nibble or a borrow from the high nibble
  to the low. The high or low nibble refers to the low order byte of a
  16-bit value.
In my day we would write a short piece of code to observe the processor behaviour. You could check it out by adding or subtracting two 16-bit numbers, followed by a pushf and pop ax to examine the status flags at your pleasure.
EDIT.
(Another way to get the flags is with LAHF which loads 5 bits of AH with flags, AF going to bit 4.)
So AF represents the carry out from bit 3 to bit 4, whatever the size of the operands. 
Note that there are no branch instructions dependent on AF. It is used internally by the DAA instruction to do a decimal adjustment immediately after an ADD instruction, typically with AL.