A little more detail:
Sometimes games request a higher-precision auxiliary buffer than they actually need. This has no effect on calculation speed (which is always done at single-precision within the shader), but does increase pressure on memory bandwidth and VRAM consumption.
The option basically guesses at when this occurs (probably with some help from game-specific driver tuning), and reduces the precision to a more suitable level. I expect that happens most often with HDR rendering, which demands higher range rather than precision for intermediate colour values.
So this option would be a good idea for low-end cards and APUs, for which VRAM bandwidth is at a premium.
