http://dictionary.reference.com/browse/alley says that the word alley originated 1350-1400. That still falls into the medieval era. But just because the word alley was not used until then, does not mean that they were not there long, long before, for the very definition of the word from dictionary.reference.com is
noun, plural -leys.
1. a passage, as through a continuous row of houses, permitting access from the street to backyards, garages, etc.
2. a narrow back street"
Now, citing several sources listed below, we can all agree that, by this definition, any time a society builds buildings within close proximity to one another, it creates alleyways. Granted, most of your outlying small villages and farm towns would not have the same layout as a castled city. But those large cities most certainly did.
There is also proof if you look at how the plague was spread. The Black Death, while still a medical mystery in a lot of ways, is believed to have been spread, at least in part, due to very poor hygiene. This included the practice of throwing ones fecal matter into the small narrow streets (see definition 2 of alley above!) between buildings, along with urinating upstream and drinking the water downstream, not bathing often and when they did bathe it was in the bacterial ridden water, and bringing pigs in some cases into the towns to run free and eat the fecal matter and garbage.
On the site http://www.channel4.com/history/microsites/H/history/plague/experts.html a little over half way down, it talks about the Cock and Key Alley of London and where it may be located. This alley way was believed to be a place where many people that had died of the plague were unceremoniously laid.
The site http://dolly.jorgensenweb.net/medievalsanitation.html has many articles on it about medieval sanitation and how excrements had been left in the small narrow streets and alleyways, and how it took cities governments to step in and install latrines and the like, and make it a criminal offense not to follow what was thought to be strict sanitation laws.
The site http://dolly.jorgensenweb.net/medievalsanitation.html is a site about Agen France, and its many medieval alleys.
The site http://www.hotels.com/articles/ar000243/an-edinburgh-travel-guide-funky-festivals-winding-medieval-alleyways-and-graceful-georgian-architecture/ is a travel guide of Edinburghand and its labyrinth of alleys.
Another place to find medieval alleys today is Genoa Italy, as seen here http://www.italiannotebook.com/local-interest/caruggi/
The other ways that alleys were surly used was by assassins. Yes, assassins. They did exist in medieval eras, most notably during the Crusades under the name Nizaris. There is a great article about them here http://home.comcast.net/~burokerl/assassins.htm. What better way to get away with murder than to use the darkness of an alley to wait in silence for your prey?
As you can see, no matter where in medieval Europe you were, if you were in a large city, you were sure to find many "narrow winding streets", or alleyways.