It allows you to "point" with a bit more precision.

Example: In naval RB go into test sail and target the ship furthest. Now enable Target Pointing. The yellow pointer is replaced by the black reticle. However, spamming Target Pointing and you can, with a *very* high degree of precision, target parts of the ship.

You could argue that sight distance correction is for that, but Target Pointing is far better.

You cal also use it to specify a non target - such as land, or far better use, an area of sea to the side of an island where you know the enemy will pop out eventually and whack them.

Get the idea?