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Alien was a broad, subjective term. It could be applied as a noun or an adjective for any entity, object, place or practice which was not familiar. In one sense, it meant someone not from one's nation or locality. But more typically it was a synonym for extraterrestrials, or that which was "alien to humans". The Doctor, for instance, often admitted that he was an "alien" to his new human companions. (TV: Rose, The Runaway Bride)
However, the word was equally applicable to humans, from the perspective of extraterrestrials. As Melanie Bush once pointed out to an English cabbie suddenly brought in the presence of extraterrestrials, "We're all aliens to each other." (AUDIO: Unregenerate!) The Time Lords labelled Leela an alien when she visited Gallifrey. The Fourth Doctor, posing to fool the Vardans, ordered that she be banished from the Capitol for being alien. (TV: The Invasion of Time)
The term was trickier to apply to non-human Earth sapients. For instance, the Third Doctor referred to the Silurians as alien beings even after he discovered they had ruled the planet Earth millions of years before. (TV: Doctor Who and the Silurians) However, the Eleventh Doctor later stated that they were not aliens but rather "Earth...liens". (TV: The Hungry Earth)