  The total contribution of diffuse halo gas to the galaxy baryon budget
strongly depends on its dominant ionization state. In this paper, we address
the physical conditions in the highly ionized circumgalactic medium (CGM)
traced by OVI absorption lines observed in COS-Halos spectra. We analyze the
observed ionic column densities, absorption-line widths and relative
velocities, along with the ratios of NV/OVI for 39 fitted Voigt profile
components of OVI. We compare these quantities with the predictions given by a
wide range of ionization models. Photoionization models that include only
extragalactic UV background radiation are ruled out; conservatively, the upper
limits to NV/OVI and measurements of N$_{\rm OVI}$ imply unphysically large
path lengths > 100 kpc. Furthermore, very broad OVI absorption (b > 40 km
s$^{-1}$) is a defining characteristic of the CGM of star-forming L* galaxies.
We highlight two possible origins for the bulk of the observed OVI: (1) highly
structured gas clouds photoionized primarily by local high energy sources or
(2) gas radiatively cooling on large scales behind a supersonic wind.
Approximately 20% of circumgalactic OVI does not align with any low-ionization
state gas within $\pm$50 km s$^{-1}$ and is found only in halos with M$_{\rm
halo}$ < 10$^{12}$ M$_{\odot}$. We suggest that this type of unmatched OVI
absorption traces the hot corona itself at a characteristic temperature of
10$^{5.5}$ K. We discuss the implications of these very distinct physical
origins for the dynamical state, gas cooling rates, and total baryonic content
of L* gaseous halos.
