Short version:
To put it simply, where other games drop in framerate, Rage will get slighly pixelated instead but keep running 60 fps.
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It's a feature that is by default enabled on the console versions (Xbox 360, PlayStation 3) and enabled on PC through an unpatched *.exe (before the command was locked) with the appropriate console command.
It's sole purpose is to reduce the resolution of the render-target when the framerate goes below a certain treshold (eg. 60 fps).
So eg. if you play at 1280x720 and the framerate is 50 FPS it will change the resolution of the render-target to be eg. 1168x657 which should let it run at 60 FPS.
The cool thing is that unlike just changing the screen resolution permanently, the interface elements are not scaled at all (remain at native resolution).
That was really informative, cheers dude!

And that is a brilliant idea, I have the same hope that more developers will adopt this idea, and then allow a manual override for people who are graphics freaks, this way we get best of all possibilities.