With automatic syncing, you have two choices:
1. Synchronise the iPod with all the music in your Library
2. Synchronise the iPod with all the music in one or more playlists.
You would choose (2) if you have for example 10 GB of music and a 4 GB iPod. In that case, you just remove things from the playlist and they will be removed from the iPod, and add things to the playlist and they will be added to the iPod. And no adding/removing to the library is needed. Or you can use this method anyway to control what's on your iPod and what's not. Or if you have two iPods, use two playlists so they can contain different music.
The only thing to be aware off is that synchronising only happens when you plug the iPod into your computer; once it is plugged in and synchronised, changing the playlists doesn't make a difference until you unplug the iPod and plug it in again.