A phosphorescent light seen at night on marshy ground.

To see faint lights hovering and slipping about near the ground on a dark night would be enough to scare anybody travelling through a marsh. No wonder the sightings gave rise to superstitious beliefs everywhere that they have appeared. There are many words for them, including the old sense of jack-o’-lantern and the learned Latin ignis fatuus, the foolish fire.
Attempts to approach the lights result in them seeming to recede or vanish, sometimes to appear somewhere else. So people thought they were the work of a mischievous sprite trying to lead unwary travellers astray. That is why there are personal names involved — Will and Jack. Will-o’-the-wisp was originally Will with the wisp, wisp here meaning a handful of hay, presumed to be alight.
We know now that the flames are methane (marsh gas), ignited by the traces of hydrogen phosphide sometimes found near decaying organic matter. Both will-o’-the-wisp and ignis fatuus are used figuratively for some false idea or influence that leads people astray.