Basically you can walk through players, but if you are inside another player, you both will be pushed out of each other at a slow-ish speed, like in Team Fortress 2.
Useful in TDMs that involve doorways and an abusive teammate. (yes i said teammate, you can't walk through members of other teams) And if you're a super-admin in a normal free-for-all DM, you can toggle whenether you can/cannot phase through other players.