This caught me by surprise too while looking through the midi fx drop down. Got it to repeat the note I play in a nice (not quite musical yet) pattern. Pretty excitig! I'd love to hear ideas for creative uses of this thing apart from making clever arps.
If you play a chord into an arpeggiator, it... well, it arpeggiates it. In other words, it plays each note of the chord individually in a particular rhythm (e.g. 16th notes) in a particular pattern (e.g. up/down, up, random). Very, very common in electronic music.