This option will allow you to play via Local Wireless mode. If there's an open session hosted by anyone nearby, it will appear in the "Join Game" window. You can also host your own match by selecting "Host Game".
When hosting, you can select whether to allow anyone, announce that friends are preferred, or have a private session with your friends only.
Your profile will be displayed in the lower screen. This is the same profile that you set for in the game's Games & More > Options > Internet Options menu.
When hosting the game, you have the full control on what settings and Rules to enable. Once every player is ready, you can start the match and get the battle going.
Other than these minor differences, the game pretty much stays the same.