Most people in WoW and Souls games use it to mean someone who purposely remains lower level but gets better gear.

Ie. Staying under a soul level to PvP with a certain level of player using late game gear. (PvP in Souls games is based on soul level brackets)

Both. The WoW term (which is actually from Ultima Online originally) comes from the queer term.

The term you are looking for is “twink”