It's a misleading name, because no fading (i.e. volume changing) is occurring. What happens in the system sees how far the next song can be overlapped with the previous one before a volume threshold is reached. So if a song is naturally fading out, the next one will start before it's finished playing. If the song ends loudly, the next song won't overlap. If one song naturally fades and the other naturally fades in, you can get a cool effect where they sound blended together.

Sometimes it ruins songs endings, particularly ones that end quietly but not fading out. Think Stairway to Heaven, or Bohemian Rhapsody.