This option is for users that have widescreen LCD monitors that have a 16:9 or 16:10 aspect ratio. On these monitors, the display can appear stretched and distorted. Square pixels corrects for the difference in aspect ratio to draw the screen in a way that makes everything look proportioned.
Have a look at the image in this post (rendered at 16:10 w/o square pixels...I took this the day after getting my new 20" LCD widescreen):
http://www.insimenator.org/showpost.php?p=384769&postcount=6...and compare it to the one at the top of the screen (rendered at 4:3). Notice the facial proportions are noticeably different. Had I turned on square pixels, the images would have been proportioned the same.
