I think what it is for is a belkin card reader. It adds a shortcut to the top menu to import photos from your card reader to the iPod. The iPod can not view them, only store them.
This option is for the Belkin media reader. The media reader plugs into the iPod allowing you to transfer photos from you camera.
I have the media reader and love it
After transferring the images from the media reader, you can then connect to your mac and iPhoto will launch or you can just go into the iPod and transfer the photos out from the photo folder.
*This option does not allow for viewing photos on the iPod.