Selecting Next Automated Approver Determined by.. allows Salesforce to determine who will be the approver of this step, based on the manager (or a custom field) of the current user.
As you can see half way down the documentation here.
For example, you may want approval requests automatically routed to a
user's manager as specified in the Manager standard user hierarchy
field. Or, you may want approval requests automatically routed to an
associate specified in a custom Account Manager user field.
Using the custom field option you can select different approving users to the current users manager, which can be useful if a person may have different superiors for different tasks.
If you don't select this box you will specify a user to approve the step from within the step. If you have selected to automatically assign the approval, you will have the option in the red box here against each step, if you did NOT select Manager (or a custom field) in the drop down above, you won't be able to do this.
but (again, in the documents) if you have one step in a process that breaks out of the "automatic rule" assignment, none of the steps can use this (as, as you can imagine, the order of superiority might have been buckled by the manual assignment)