Diluted means that it has water added to it to make it less strong. Rubbing alcohol is a very strong, undrinkable kind of alcohol used largely for medicinal purposes. It is called rubbing alcohol because it was originally intended for rubbing on skin. This is the American English name. In the UK, it's called surgical spirit.

a dilute liquid has been made weaker by the addition of water or another liquid

A diluted water is very thin and weak, usually because it has had water added to it. Rubbing alcohol is a liquid which is used to clean wounds or surgical instruments.