It's not really very useful, I think I'll be removing it eventually.
It allows you to snap to points that you have previously picked inside the same drawing command.
For instance - do a Draw curve / Freeform / Control points, pick a few different points just in random locations. With "Snap to picked points" turned on, you can now go back and snap to those earlier points that you clicked to drag a construction line off of them. This can allow for example to place more points that are symmetrical about an axis to the earlier ones.
But it is only useful in a pretty complex situation, it is easy to solve the same problem by placing some reference lines or points around before you start the curve (to snap on to), that's why I think it can be removed.
Let me know if this explanation doesn't make sense.
- Michael
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