When you're collecting signups for a summer event, and you ask attendees to provide their grade, should they enter their current grade, the grade they just completed, or the grade they're entering in the fall? Now they don't have to guess — you can specify which grade to provide!
This option changes the label of the field for the specified attendee type — but it does not do anything special with promotions in People. We strongly recommend only using Grade Entering after you've done your grade promotions.