The Auto-Fill Shipped Qty On Edit setting defines how the Ship Quantities on Sales Transaction Types using the OnOrder/QtyToShip and TotQty/TotShipped Modes are populated.
When enabled, the Ship Quantities for items on existing transactions are Auto-Filled when editing the transaction.
When disabled, the Ship Quantities for items on existing transactions are not Auto-Filled.
See:
Configuration Manager - Settings - Sales Transaction Types - Parameters - Entry