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In the Settings/Manufacturing, there is an option that can be set ON/OFF

"Manage manual picking to fulfill manufacturing orders"

What does it mean or do?

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This option forces an extra step (picking) before a production order can be 'ready' to start.

You need this if:

1) users like to choose which orders should be 'ready' to produce (many want to make this decision on their own because often the scheduler will auto-pick certain parts of orders, not the entire order, and leave manufacturing unable to start anything because it hasn't assigned raw materials intelligently)

or

2) users are sub-contracting production and need to account for goods being 'delivered' to your subcontractor (when you need to put the supplier location in the routing).

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I created and processed an MO both while "manual picking" was ON or OFF. I could not see a difference in the process, in anything on-screen. What should I be looking for? Where specifically does the change come into play?

The status of the MO should be 'waiting for raw materials' (ON) or 'ready to produce' (OFF). Are you not seeing that?

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Once the MO is created and confirmed, the chain displayed is: "Awaiting raw materials","Ready to Produce","Production Started","Done". This is the same whether "manual picking" is enabled or not. Once confirmed, the MO falls into "Awaiting" no matter the stock level. No matter how I process, same.

The chain won't change. When autopicking is on, the scheduler may assign stock and move the status to 'Ready to Produce'. If the scheduler does not assign stock, or if autopicking is off, you need to validate the picking to move the status to 'Ready to Produce'. Are you running the scheduler?