Assalaamu alaykum. What does this hadith in Muslim mean: "Allah is light"?

All perfect praise be to Allaah, The Lord of the worlds. I testify that there is none worthy of worship except Allaah and that Muhammad, sallallaahu ʻalayhi wa sallam, is His slave and Messenger. 

There is no hadeeth in Saheeh Muslim with the wording that you mentioned, “Allaah is light." You may be referring to the hadeeth in Saheeh Muslim narrated on the authority of Abu Tharr when he asked the Prophet, sallallaahu ʻalayhi wa sallam, “Did you see your Lord?” He, sallallaahu ʻalayhi wa sallam, replied, “(He is) Light; how could I see Him?”

Ibn ʻUthaymeen wrote: It means, “There are great veils/screens of light between me and Him.”

Another version of this hadeeth in Saheeh Muslim reads, “I have seen light.” The light in reference was the light of the veil to which the Prophet, sallallaahu ʻalayhi wa sallam, referred in another hadeeth: “His veil is light...” [Muslim]

Ibn Al-Qayyim said, “His veil is light; this light is the very light - and Allaah knows best - to which the Prophet, sallallaahu ʻalayhi wa sallam, referred in the hadeeth narrated on the authority of Abu Tharr : ‘I saw light.’”

You may also be referring to the hadeeth in Saheeh Muslim narrated on the authority of Ibn ʻAbbaas that says that when the Prophet, sallallaahu ʻalayhi wa sallam, got up to pray at night, he would say, “Allaahumma laka al-Hamdu anta noor as-samaawaati wal-ardh ... (O Allaah, to You be praise. You are the Light of the heavens and the earth...).” This is in accordance with the verse: {Allaah is the Light of the heavens and the earth...} [Quran 24:35] The scholars commented differently on this verse, saying that it means that:

1) Allaah is the guide and source of guidance for all the inhabitants of the heavens and earth.

2) Allaah illuminates the heavens and the earth, managing and controlling the affairs of the heavens and earth and their stars, sun, and moon.

3) Allaah is the original source of light of the heavens and the earth.

Ibn Al-Qayyim wrote, “The truth is that Allaah is the light of the heavens and the earth in terms of all these interpretations...”

Verily, Allaah, The Exalted, is the guide for all the inhabitants of the heavens and earth; they are guided by His light to the truth and are saved by His guidance from falsehood and manifest error. He has illuminated the heavens and the earth and guided those who dwell in them by His Light. He conducts the affairs of the heavens and earth: their stars, the sun, and the moon. He is Light as He has named Himself.

The well-versed scholar ʻAbd Ar-Rahmaan As-Saʻdi commented on the verse: {Allaah is the Light of the heavens and the earth...}, saying:

“The verse means that Allaah is light in both the tangible and intangible sense. In the tangible sense, Allaah is light in His essence, and His veil is light. Were Allaah to uncover His veil of light, the splendor of His Countenance would burn His creation as far as His sight reaches. By His light, the Throne, the Kursi, Sun, Moon, Paradise, and light itself are illuminated. In the intangible sense, Allaah is Light; His book is light; His legislation is light, faith and knowledge are the light with which He illuminates the hearts of His Messengers and believing slaves; if it were not for His light, darkness would have accumulated. Therefore, whenever His light is missing, darkness and misguidance prevail ...”

Allaah knows best.