Er yes, I also believe MOD=modification. And that doesn't just go for Lego:
mod
Wiktionary: "A modification to an object, computer game, etc., typically for the purpose of individualizing and/or enhancing the performance of the object."
Merriam-Webster: "modification; modified"
YourDictionary: "(MODify or MODification) [...]"
In the context of Lego, I'd say a mod is a modification of an existing set (or someone else's MOC perhaps). For example I'm working on a mod of the 7745 high speed train (converting it from 12V to PF).