The impersonation level, set by the client, determines the amount of authority given to the server to act on the client's behalf. For example, when the client has set its impersonation level to delegate, the server can access local and remote resources as the client, and the server can cloak over multiple machine boundaries if the cloaking capability is set. To help determine which impersonation level you should choose, see Impersonation Levels and Cloaking.
Setting the default impersonation level for the whole machine tells COM what impersonation level to use when a particular client on the machine does not specify an impersonation level programmatically using CoInitializeSecurity or CoSetProxyBlanket.