After some coffee
I have seen that you are NOT talking about the dot product (which I assumed and talk about below - I will still leave this for others), but about the component-wise multiplication. I don't think that one has a name in math; I don't know of any major use in math either. It has no real significance (besides some programming tricks) nor geometric meaning that I know of. You are correct in thinking that the dot product is closer to usual multiplication than component-wise multiplication.
This is the dot/scalar product: <a,b> = a_1 * b_1 + a_2 * b_2 + a_3 * b_3, where a = (a_1, a_2, a_3) and b = (b_1, b_2, b_3).
If you take normalized vectors, i.e. vectors of length 1, and compute the dot product, it gives you a sense of how parallel they are: the dot product gives you the cosine of the angle between two vectors (|a| = length of a):
<a,b> = |a| * |b| * cos(angle(a,b)).
Most of the time mathematicians write a * b as a multiplication and mean <a,b>; usually it is clear from context what operation should be performed.
In math the dot product is often used to split a vector a into components parallel to a vector b (dot product = 1) and orthogonal to b (dot product = 0) to compute projections of vectors onto lines or planes. This is also the reason the dot product can be used in lighting computations: Somewhere in there it contains the angle between the light ray and the surface normal, which gives you the direction of the reflected light ray.
To summarize: dot(a,b) = how parallel are a and b?, component-wise multiplication a * b is not much more than scaling each component of a individually. The notation a * b for component-wise multiplication is a mostly 3d graphics/programming thing. I believe it stems from SSE and similar instruction sets.