Smooths lines and areas by inserting additional midpoints and using a spline algorithm to replace sharp corners with curves. The value in the source / argument box determines the number of midpoints inserted into each segment.
Example
Consider a drawing containing a line and an area.
After running the Spline operator on [All Objects] with a source / argument box value of 5 both the line and the area have been smoothed.
Smoothing will preserve common boundaries between adjacent areas.
For example, suppose we have two adjacent areas like the above.
Running the Spline transform (again, with a parameter value of 5) creates the above smoothed boundary between the two areas.
Notes
Spline is a great way to provide a more natural, rounded appearance to vector drawings in GIS. It is similar to how Bezier curves are used to provide rounded curves.