Max bidding saves biddings from having to place another bid each time they are outbid.
For example, suppose Tom is really interested in a signed football you've entered into your auction, with a current high bid of $500. Tom is willing to pay up to $2,000 for the football but not a penny more.
So, Tom places a max bid of $2,000 and shuts down his computer. WinningBidder.com places a bid on Tom's behalf at the next bid increment, $525.
Another bidder, who can't see Tom's max bid, places a bid for $550. Again, WinningBidder.com places a bid on Tom's behalf for $575. The process repeats until the auction closes, at which point Tom is the winning bidder at $1,200.
Multiple max bids
It's possible for multiple people to enter max bids. Here's how those scenarios are handled:
If someone placed a max bid of $1,500 after Tom's max bid of $2,000, then a bid of $1,500 would be recorded and then Tom's bid of $1,500 + one bid increment would be recorded immediately after that.
If someone placed a max bid of $2,000, matching Tom's, a bid would be recorded for Tom at $2,000 making him the high bidder (first max bid in wins).
If someone placed a max bid of $3,000 after Tom's max bid of $2,000, then a bid of $2,000 would be recorded for Tom and then the new bidder's bid of $2,000 + one bid increment would be recorded.