The ID3 tags are a way of embedding data within the MP3 or AAC format. It's sort of like embedding a JPEG in a Word document. There are different standards, and "Convert ID3 Tags..." will let you convert between them:
"ID3 version 1 includes simple fields such as album, artist, and title through a 30-character text field embedded at the end of the MP3 file, using 128 bytes of total data.
"ID3 version 2 has been totally rewritten to allow variable length fields. It includes lengthier textual information plus other information such as who encoded the file, Web sites, pictures, lyrics, and other information."
The command will also allow you to switch the character sets of the ID3 tags — if your data is in Chinese and the tags are set to display in English, for instance. I've never had to use it.