Thea idea is if you're one of those people who let the phone stay bright in a more dim environment, then you will save battery life by having it on. Basically it assumes most people are dumb, and will not adjust it manually to match their environment, then you will save battery life by having it on.
I personally find auto brightness very good on iOS EXCEPT for when in a very dim environment, and it will not go below 10-20%, like others have noted, I also manually adjust it at this point. Thank god that does not kick off the auto brightness setting, as I do it daily.