This function defines you as a collision volume - a 3D object that can navigate around and interact with the model, obeying certain physical rules that confine you within the model itself. In other words, you have a mass and as such, cannot pass through other objects, points or lines in the scene.
You can walk over, or climb over objects in the scene that are up to half the height of the collision volume, thus allowing you to walk up stairs, for example.
The collision volume, in its basic form, is a sphere (with radius = r), that can be extruded to give it height (with height = h >= 2r). See diagram below:
The dimensions of the collision volume can be customized for the current viewpoint or as a global option.
When collision is turned on, rendering prioritization is changed so that objects around the camera or avatar are displayed with much higher detail than normal. The size of the region of high detail is based on collision volume radius and speed of movement (needing to see what is about to be walked into).