My understanding of the all stereo setting is that all speakers are used to play the stereo signal. The speakers are divided right and left and the stereo signal is sent to every speaker that is in the set up. It is not bad for parties, other than that, I have never used it.
Oppo BD103D, PT100, UPA-200, Modified Squeezebox Touch, Airmotiv T2+, Outlaw LFM-1 EX sub
Study system: MiniX A-100, Upgraded Rega P3, Grado Sonata Cartridge, Vincent PHO1 phono stage, Airmotiv B1, XDA-2 USB dac
I think it's described fairly well in the manual and pretty much what Trey said. It copies the front left to the surround/back lefts and the front right to the surround/back rights. I don't recall if the center gets a mix of the front left/right. The subwoofer level is likely boosted to account for the fact that you have more than two speakers playing the same signal. I like it for background/party music.