What are the fields "allow upload from asset" and "Initial asset category" for?

The "allow upload from asset" checkbox marks this image field as capable of using the user-provided assets instead of uploading from your computer. The "initial asset category" defines where in the category tree this will take place.
To see an example, try this 5ID template.
As of 7/24/2013 this feature is only functional for eDoc-only customers. Efforts are underway to expand it to Pressero.