It is very nearly just an action where clicking an app in your dock causes that app to open or gain focus, and all other apps are minimized and hidden. The other apps are still open, they simply act as if you've hit Option-Command and clicked an application's window, causing all other apps to hide.
At first I turned it on thinking it'd be fun to play around with. I kept the Terminal window open with the command ready to reset the feature, but as I spent the day using it I realized I kind of like it. In fact, I'm still using it.
You can still open a number of windows at once using the Command-Tab key combination to select other apps. But clicking a single app in the dock will hide them all and return you to single application mode.
The mode was put in for novice users who would get lost among the many windows that can litter your screen, but it was soon abandoned as people got used to OS X. I'm no novice, but I am someone who clicks Option-Command very often because I find the chaotic splattering of windows sometimes overwhelming. If you do as well you should check out Single Application Mode.