The advanced color space options page gives you control over the YCbCr <-> RGB conversion.
The top half allows the selection between the ITU-R BT.601 and ITU-R BT.709 standards, while the lower half is used for black and white cut-off, which controls the contrast.
These settings are used only when ffdshow is doing YCbCr <-> RGB conversion.
In other words, if you are playing MPEG video and the output color space is YV12 or YUY2, these settings will be ignored.
ITU-R BT.601 and BT.709 are both ITU-R standards for component digital video. They define how to convert YCbCr <-> RGB.
Almost all videos are encoded using a Y-range of 16-235 (luma). YCbCr(16,128,128) is normally mapped to RGB(0,0,0).
Some video clips have Y-values below 16 which represent "blacker" than black. If you want to take advantage of this gradation at the expense of contrast, use full range or custom mode.
MJPEG and JPEG (used in grab filter) use so called PC.601 standard in most cases. In this case, PC.601 is used and the setting in the dialog is ignored.