It controls what voltage level is used to power the GPU. After a certain point, your GPU will become unstable (you'll see visual glitches or crashes) if you keep increasing frequency. Increasing voltage helps stabilize things at higher frequencies. The downside is that increasing voltage causes power consumption (and therefore heat) to increase pretty quickly, more so than increasing frequency. Also, higher voltages can in theory shorten the lifespan of the GPU, even if it's being kept cool.
That being said, you're typically pretty limited in how much you're able to increase the voltage (short of getting a modded BIOS or something), so any voltage that you set using a typical overclocking utility is unlikely to do any harm. Although if you're not sure what you're doing it may be best to just leave voltage alone.