That option makes you MUST manage ALL of your music and videos BY YOUR SELF.
(Note: If you don't activate it, default-ly iTunes will do that for you)
Example; If you just add 20 new songs to your iTunes library or / and at the same time remove 10 old songs from there. Next time you connect your iPod to your PC;
1. If you don't activate "Manually Manage Music and Videos"
iTunes will automatically copy that 20 new songs to your iPod or / and removes that 10 old songs from your iPod.
2. If you activate "Manually Manage Music and Videos"
iTunes will not do anything, so you MUST DRAG AND DROP that 20 new songs from your iTunes library section to your iPod section or / and you MUST DELETE that 10 old songs from your iPod section BY YOUR SELF.
So, the second condition is SO FRUSTATING, right?! So i think, you shouldn't activate that option.
NOTE:
*You can activate or de-activate that option whenever you want.
*If, in another time you mess up your iPod, don't worry, you just should "RESTORE" (means make your iPod's software just like new) your iPod. (You can restore it by choose "restore" button from the iTunes when you connect that iPod to your PC.
Source(s):
Apple Homepage (www.apple.com) + My Own Experience
=)
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