Pretty much, when host is put in standby mode, it's still in a powered down state but you can power it on via WOL (Wake on LAN). The primarily use case with this functionality is integration with VMware DRS and VMware DPM (Distributed Power Management) which allows the cluster to shutdown hosts that aren't being actively used to save on power, once it detects a higher load, it'll issue power up to the hosts that are in standby mode based on the load.
Here's an article showing you how to configure DPM for your hosts: http://itknowledgeexchange.techtarget.com/virtualization-pro/configuring-distributed-power-management/
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William Lam
VMware vExpert 2009
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Twitter: @lamw
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