Annualized volatility rescales a shorter-period volatility to a yearly figure by multiplying by the square root of the number of periods in a year.
Because variance adds across independent periods, you multiply a daily standard deviation by the square root of 252 (trading days) to annualize it. The rule assumes independent returns and can understate risk when returns cluster in a crisis.
Formula / example: Annual vol = daily vol x sqrt(252). A 1% daily vol is about 15.9% annualized