Mainly the torpedoes explode in the general area your firing in. Now don't get me wrong, but this option would help when your fighting guys with cloaked ships. it would force them out of hiding if they are close to your position.
I don't know about anout one else, but I feel this can only help make the game better. Last I checked you can't fire your weapons without a target, this option lets you at least fire your torpedoes into an area then BOOM!