I've really wondered this too. We only have the little blurb says next to the option says:
Use this setting for sets of videos uploaded to your channel as part of an official series. A video cannot appear in more than one series playlist. YouTube may use this information to modify how the videos are presented or discovered.
^ This. I think that's what it's for, the autoplay function. If someone watches a video from a playlist, using the playlist link, then it'll autoplay the next video. However if they just get sent to that one particular video, and aren't viewing the video from within its playlist, then the "Autoplay" will likely just direct them to some other related video, rather than the next in the playlist.
I assume when you have it set as a series, this is no longer true, and people watching the video, even without being linked to the playlist itself, will automatically get sent to the next episode after one ends. I've noticed this behaviour with some shows on peoples channels where it automatically knows to go to the next episode even without the playlist link, and I think this is how.