In essence, it allows content owners a third option when dealing with unauthorized posts. Instead of yanking them and breaking inbound links, or ignoring them and losing any value from the traffic, these arrangements allow them to keep the post intact, while transferring it to their control - no DMCA notices required.
The situation with Megaupload represented an abuse of this system. Because it's (apparently) possible to start the redirect process but not complete it (i.e. by having the Megaupload song appear on VEVO), UMG realized that they could 'disappear' the song from YouTube without having to file a formal DMCA notice asserting ownership.
Obviously, this is a hack, and not at all what YouTube imagined when setting up the transfer system in the first place. So I imagine lawyers are busy rehashing contracts right now.
While I'm sure that UMG is able to remove things they don't own, saying that they're allowed to is something else entirely and we should reserve judgement on that until such time as the contract, or at least rulings concerning it, are made public.