It allows you to synchronize your Grid file (which you may have made your own edits to) with the master copy provided with updates.
 
Skip (which is what the update process automatically does) adds any new grids but does not touch existing ones.  Replaces also replaces any with matching names with the IS Tech master versions but does not replace any new grids you may have developed with different names.  Overwrite means that the entire grid file will be replaced and any of your edits will be lost.