The goal of this original design was to provide enormous flexibility in how printing is accomplished with respect to color handling. Color "management" is a hard science topic that is not for everyone, and barely understood even by most creative professionals in the print industry. The average Jane trying to print her photos in Photoshop (or even the average consumer pro photographer) was tripped up by this dialog all the time. What does it mean, "same as source?" When should I choose something different? What combinations are good and which are bad, and for what??
The short story of color handling is that there are conversions going on all over the place -- an image viewed on the screen looks one way, because it has been interpreted by your OS and screen settings to be seen as you see it. It may not be seen the same on anyone else's screen. A common complaint from the common user of Photoshop is "I printed and it looked different." It will always look different, because you are now converting to what your printer can print, not what your screen can display.
"Profiles" are descriptions of how the colors in a file should be handled in conversion, more or less. One of the strengths of Photoshop is that it lets you simulate ("proof") how something will look on another device. You can even use your printer to simulate another printer. But you have to pick all the right combinations of profiles, and have good ones so you get accurate previews.
Photoshop has an excellent conversion engine. Some printers do too, and some consumer printers do, but you can't be sure. Every device will differ a little, and consumer profiles are batch produced. I grew up in my understanding of color handling at Adobe concluding that I'd never use my printer's color management because these consumer devices just won't be reliably good; I'd rather trust Adobe's world class color scientists, with whom I was then working!
We couldn't do much about the consumer printer drivers and in particular couldn't override their own color handling, so we relied on rollover help that I think ended up a little vague about what you need to do next. In my Canon printer dialog, the necessary place for enabling or disabling color management in the printer is buried in this "ICM" language:
But now that I have the new Photoshop CS2 UI to experiment with, I've discovered (to my chagrin) that a color management problem I hadn't been able to diagnose is Photoshop's conversion's fault. At least, I get the best results from enabling color in my printer, instead. The preview my printer driver gives me before it prints is quite accurate, it turns out:
There's obviously a lot more to say about color management in printing (entire books have been written on it), but my reason for posting is to say: I hope we made the world of the Photoshop user a little simpler, at least as far as debugging their printing issues goes. I haven't heard any customer feedback on this myself, but it sure has helped me! (And I was privileged to have been able to work on this with the color management team at Adobe, including Lars Borg, Chris Cox, Russell Williams, and Matt Philips.)