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My guess (I have no actual knowledge of how Markus implemented this) is that the home team experiences a bump in batting ratings and the visitor's batting ratings are slightly decreased.
Conversely he could have also gave the bump to pitchers or both batters and pitchers.
I hope Markus or someone that actually knows will chime in and give a better explanation of how it works.
I'm glad it's an option though (and really hope it is an actual option, and not just something implemented that only looks like an option) because I think an arbitary home field advantage is not only unrealistic, but makes OOTP a text arcade game instead of a text sim game.
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