[ah06]

This option can be reached from Settings>WiFi>Advanced (WP8 Portico on L920)

Enabling or disabling it makes no difference whatsoever in controlling the behaviour of the phone connecting to known WiFi hotspots (like at home and work)

WP8 seems to auto connect to known WiFi hotspots anyway (with no way to manually disconnect without deleting, changing password or turning off WiFi)

Even if I uncheck this setting, it connects to known networks.

So what exactly does it govern? (Carrier provided hotspots in malls?)

[BeaverJuicer]

There is a difference between a known network, and a hotspot. A hotspot is typically public access WiFi. Enabling this option, will tell the phone to attempt to connect to any open wifi network it comes across.

You'll still have to go and accept the T&C on most of them, but it connects.