The crossfade setting only applies during playback in iTunes, and then when tracks within a playlist are not from the same album and in consecutive order. iTunes used to have a user-controllable setting called "gapless playback" which worked in conjunction with cross fading, so that even if you had enabled the latter playing tracks in sequence from one "gapless" album the crossfades wouldn't apply - the classic examples being albums like Dark Side of the Moon where the tracks are intended to flow into each other and cross-fading would be inappropriate. The ability to set or unset "gapless playback" disappeared from iTunes several releases ago and, as far as I can tell, all albums are now tagged as gapless - so the crossfade rule is now simply applied between tracks from different albums, or non-consecutive tracks from one album.
As far as the "automatic" setting for CD burning is concerned, I was simply guessing that this might apply a similar rule to crossfading - i.e., it would insert a 2 second gap except in the case of tracks from one album that are being burned in track sequence. I may, though, be entirely wrong in this assumption 😉 and "automatic" is simply the same as setting the gap to 2 seconds.