The listening environment section allows you to quickly get optimized sound for your listening environment. Speaker mode optimizes your listening experience through speaker systems. Headphone mode optimizes your listening experience through headphones.
When in Headphone mode the audio is processed in such a way that the music sounds as if it is originating from a source in front of you rather than coming straight at your ears. This creates a much more pleasant and natural sound. It also reduces listener fatigue by eliminating the "in your head effect" of regular headphones.