As I understand it Advertising ID is used to deliver targeted ads to you in certain MS apps such as Bing News. It also allows them to track you from device to device.
It's nice that they give you the options to turn it off and reset it though.
It's like cookies in web browsers. It keeps track of your activities and usage and stuff to give you better relevant adverts in apps. You can turn this off if you want but it will just throw random adverts than personalized.