Vsync (vertical synchronization) basically means, whether your video card waits until one frame is completely painted on screen, before starting to paint another frame.
If vsync is enabled, a new frame is painted immediately when it's ready, even though your monitor is still busy painting the previous frame. That means you can end up with half the screen containing the old frame and half the screen the new frame. In 3D games this results in the "tearing" effect, in 2D games it's typically not that apparent (unless the majority of the screen is changing).
The practical result is the game framerate. If vsync is enabled, the game is being slowed down by the monitor refresh rate (typically 60Hz, i.e. 60 frames per second). If vsync is disabled, the only limit is how fast the CPU and the videocard can produce new frames (and since WME scenes are usually not too complex, frames can be produced rather quickly).
In DirectX 8 the windowed mode used disabled vsync and full-screen mode used enabled vsync. In DirectX 9 the application can configure this, but by default WME uses the same settings as DX8 did for compatibility. The modification in this thread overrides this default setting.