It attempts to makes the left ear only hear what is coming out of the left channel and the right ear only hear what is coming out of the right - as if you are using headphones. Normally with speakers, both ears are going to hear both.
Exactly this. One example would be the difference in how pronounced reverb and delay effects are on headphones versus most speaker setups. Each ear is much more isolated, so the separate audio tracks for each ear don’t blend.