I've had mixed luck using this option for burning CDs. Most of the time everything works fine. But occassionally, a song or two just sounds terrible on the burnt CD. It's almost as if iTunes adjusted the volume too much. If a track is too quiet, the volume is increased so much that it sounds really bad on the CD.
I'm not exactly sure how this option works, but from what I can tell from playing around with it, an average volume is chosen based on the selected tracks. All of the tracks are adjusted up or down to match that average volume. Anyone know if this is even close to how it actually works? Haha.