I always thought of it as a wish, as if the person saying "salud" to you wishes you keep in good health, because you've just sneezed or because we wish for nice things when we raise our glasses before we drink. In German they say "Gesundheit!" which means "health" (and I believe this happens in other Indoeuropean languages, too), but they have another word for the drinking "salud".
 
It would be interesting to know the real reason behind this!

There are lots of words in Spanish that have two (or more) meanings, and that are used in different contexts. I think we have a very rich language!