The Auto-Fill Shipped Qty on New Lines 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 added to new transactions and new items added to existing transactions are Auto-Filled.
When disabled, the Ship Quantities for items added to new transactions and new items added to existing transactions are not Auto-Filled.
See:
Configuration Manager - Settings - Sales Transaction Types - Parameters - Entry