With the spelling 'wassail', the etymology is less obscure:
Forms: ..., ME–18 wassel(l), ...
Etymology: Middle English wæs hæil etc., < Old Norse ves (= later ver ) heill , corresponding to Old English wes hál lit. ‘be in good health’ or ‘be fortunate’ ... As an ordinary salutation (= ‘hail’ or ‘farewell’) the phrase, or an approximation to it, occurs both in Old English (hál wes þú , and in plural wesað hále : see be v. 4 θ. forms) and in Old Norse (plural verið heilir). But neither in Old English nor in Old Norse, nor indeed in any Germanic language, has any trace been found of the use as drinking formulas, of the phrases represented by wassail and drinkhail. It seems probable that this use arose among the Danish-speaking inhabitants of England, and became more or less common among the native population; in the 12th cent. it was regarded by the Normans as markedly characteristic of the English. The earliest known occurrence of the phrases is in Geoffrey of Monmouth vi. xii. (c1140), in the well-known story of Rowena (wes heil..drinc heil: v.r. was heil, printed edd. corruptly wacht heil). Geoffrey's attribution of the phrases to the 5th century is an anachronism; the original story as told by Nennius contains nothing corresponding to them.
The foregoing etymology is given for 'wassail' generally, and is applicable to these definitions (among others):
Now only arch. and Hist.
1. a. A salutation used when presenting a cup of wine to a guest, or drinking the health of a person, the reply being drink-hail n.
2. The liquor in which healths were drunk; esp. the spiced ale used in Twelfth-night and Christmas-eve celebrations.
["wassail, n.". OED Online. September 2015. Oxford University Press. http://www.oed.com/view/Entry/226012?rskey=MI88Tf&result=1&isAdvanced=false (accessed December 07, 2015).]
Wassail, the hot drink, is also known as Lambswool, a name purported to derive from the white puffiness of pieces of boiled apples. The drink is also traditionally served on Halloween. Alcohol is unnecessary, and many recipes do not explicitly include it.
The term 'wassail' may also be applied to both ancient and modern celebrations. Sometimes known as 'Apple Howling', these celebrations commonly take place at or around dusk on Christmas Eve and 12th Night (as mentioned in definition 2, above). As a verb, 'wassail' ('wassailed', 'wassailing'), is applied to the activities associated with those celebrations.
Down in the counties of South-West and South-East England a very old and special ceremony takes place in the apple orchards; the Wassail was a way to celebrate the end of Christmas and to bless the trees so that they will bear plenty of fruit for the cider. It was a time of celebration and merry-making. All of this happened at dusk, a magical time of day, where the world faeries and spirits overlapped with the world of Man.
(From British Food: A History, "Wassail!".)
This account of the origin of the drink and the ceremony is given at the British Food site:
Wassailing predates the Battle of Hastings and is thought to have its origins in Ancient Rome, where people would make sacrifices to the Pomona, the Roman Goddess of Fruits. The word Wassail originates from the Anglo-Saxon waes-hael, meaning “to your health” and the word is used just as we would use Cheers! today. Below is one telling of its origins by Geoffrey of Monmouth in his 1135 book History of the Kings of Britain:
'While Vortigern was being entertained at a royal banquet, the girl Renwein came out of an inner room carrying a golden goblet full of wine. She walked up to the King, curtsied low, and said “Lavert King, was hail!” When he saw the girl’s face, Vortigern was greatly struck by her beauty and was filled with desire for her. He asked his interpreter what it was that the girl had said and what he ought to reply to her. “She called you Lord King and did you honour by drinking your health. What you should reply is ‘drinc hail.'” Vortigern immediately said the words “drinc hail” and ordered Renwein to drink. Then he took the goblet from her hand, kissed her and drank in his turn. From that day to this, the tradition has endured in Britain that the one who drinks first at a banquet says “was hail” and he who drinks next says “drinc hail.”'