It interpolates positions between two adjacent waypoints. You can also set the specific heading you want at any waypoint so you could make it interpolate positions across a longer series than just two adjacent waypoints.
In addition, if you set the gimbal control to POI 1, it aims gimbal pitch to find POI 1 at the center of the view. If you set the gimbal control to "Interpolate" it will allow for smooth transition from POI 1 to POI 2 even across multiple waypoints.
Imagine:
WAYPOINT 1 : POI 1, GIMBAL TO POI 1
WAYPOINT 2 : MANUALLY SET HEADING, GIMBAL TO INTERPOLATE
WAYPOINT 3 : POI 2, GIMBAL TO POI 2