i've explained this thoroughly in another thread.... which i can't find...
while it is directly related to HDR... setting it to 0 DOESN'T Disable HDR.. hdr cannot be disabled in this game far as i've surmised... it can be further toned down with mods... but otherwise.. not disabled..
all the the setting does from the bit of what i can get out of the setting and differences.. is increase the range of the HDR.... and other shader specific values used which can apply to many other things outside of HDR...
typically most programmers use FP16.... it's fast, easy, doesn't require to much.. and lets face it.. the game is xbox360/ps3 friendly which doesn't exactly sport a massive gpu.. they are trying to optimise..... actually they might even be doing FP12....
There are also combination of FP..... you can combine different elements of FP16/24/32.... obviously the higher up you go... the larger the range, the better the precision usually and of course the MORE there is an impact on performance.... It's rare to see anything over 24 being used on PC games and anything higher than 16 on xbox/ps3 system IF they use something higher than 12..
it's still unadvisable to enable it.... the engine really doesn't make good use of a higher precision... and like i said prior... has a good chance of killing or even making your fps TANK.....
snip from another forum if your willing to take a quick gander at some detailed info
Let me clarify some of this. There are two main components to a floating point number, the mantissa (precision) and the exponent (range). In some cases, one is more important than the other (i.e. you want more precision when sampling textures, you want more exponent when demonstrating high dynamic range).
FP16 = s10e5, which means the mantissa is 10 bits plus 1 implied bit = 11 bits (the "s" represents the sign bit). The exponent is 5 bits, which means your maximum exponent is 15.
Since your maximum exponent is 15, that means the largest difference you can have between your dimmest areas and your brightest areas is only a factor of 2^15 = 32768. (I am neglecting non-normalized floating point values as those are uncommon.) Since your mantissa is 11 bits (note that this is lower than the precision of FX12), you can sample 2048 different positions from a texture map, but note that you'd want about 4-5 bits of subpixel precision, so you end up only being able to accurately sample a 256x256 texture.
FP24 = s16e7 = 17 mantissa bits, 7 exponent bits. This means your largest exponent is 63.
With such a large exponent, you can acheive differences in brightness of over 9.2 * 10^18! With 17 bits of mantissa, you can sample 2048x2048 textures and still have 4-5 bits of subpixel precision left over. Very well balanced.
FP32 = s23e8 = 24 mantissa bits, 8 exponent bits. This means your largest exponent is 127.
Now your range goes up to 1.7 * 10^38. Pretty much overkill compared to FP24. With 24 bits of mantissa, you could sample a 524288x524288 texture with 4-5 bits of subpixel precision. Again, overkill.
This doesn't mean that FP32 is bad. What it means is that FP32 is not likely to offer noticable improvements over FP24 on today's shaders. The jump from FP16 to FP24 is very large, because you are getting a large jump in precision and range. The difference from FP24 to FP32 is mostly in the precision... which was already sufficient to begin with.