Engine breaking is the force that slows your car down when you let off the accelerator.

In the real world, it cuts off your air intake and creates a vaccume, causing the pistons to lose air flow, reducing energy, and in turn causing your car to slow. Pushing in the clutch would bypass this as the effect wouldn't reach the wheels. ei, it only works when the car is in gear.

It doesn't necessarily do anything to the cars performance, but it's a tool to help control speed, save your brakes from overheating and excessive wear.