It does exactly what it's name says: when it's in the on position it filters out some of the lower frequencies picked up by the mic.
As far as when to use it, use it when it gives you closer to the sound you actually want to record. That is, when you want whatever your recording to sound less bassy, turn it on. Or if you're having a problem with vibrations from the kick drum or from the semis driving down the street out front causing bad low frequency rumble to sneak into your recordings, turn it on.
OTOH, if you need or want to pick up as much bass as you can, turn it off.
G.