The announcement regarding this pull was made on David Airlie's blog. The ATI R600 series graphics cards will likely become the most powerful 3D graphics cards with an available open source driver to date. The graphics processing unit codenamed R600 is the foundation of the Radeon HD 2000/3000 series and the FireGL 2007 series video cards developed by ATI Technologies. This announcement does not appear to include support for the more recent R700. R500 and earlier GPUs already have reverse-engineered open source 3D drivers for Linux.
Kernel mode setting means moving the mode setting functionality from video drivers from the userspace X drivers into the kernel. While this may seem arbitrary and uninteresting for end-users, this isn't exactly the case. Kernel mode setting enables a much richer boot experience, less problems with sleep/wake cycles, and improved VT switching.
Kernel mode setting requires drivers to be altered to support it, and currently a number of open source drivers have been altered to support it. Proprietary drivers do not support it.