Product configurations allow you to create a pseudo product that does not exist in your ERP system that allows you to kit products together with rules (similar to a flexible kit). This option will insert a BOM (bill of materials) into a sales order made up of the correct product codes and quantities for the configuration selected by the customer.
A common use for this feature is to assist with building a custom product of varying complexities. An easy example would be selecting the size, color, and type of shirt (long vs short sleeve). A more complex example would be to build a bicycle where you may have multiple seat, wheel, tire, gear, and other options available. Since stock levels are kept in sync with your ERP system, the customer can see immediately if the option(s) desired are possible or not.