This main window button changes the display of distinguished names in the object list and in the attribute list panel. When the button is pressed, the objects are shown in a friendly way which is more readable for humans than the technical, X.500-derived LDAP distinguished name.
Each object has a distinguished name which determines not only the object's name itself but also the place where the object is stored in the directory hierarchy. These distinguished names are specified in RFC 4514 and you can find a good description on LDAP distinguished names in the SelfADSI tutorial.
You could change the object name display also with the menu option View - List Output Settings.
The friendly name output in the object list depends on the object list scope you chose before: If the list just shows the direct child objects of the currently selected container, then you see just the pure name of the objects (the RDN or Relative Distinguished Name):
If the list shows all child objects in an entire subtree (deeptree object list view), then the friendly name contains the container hierarchy of the object:
In attribute lists, LEX have to show the attribute values, therefore it's a bit dangerous to change the display of distinguished name attributes because the user could overlook this conversion. To avoid misunderstandings regarding the real attribute value, you have to explicitly configure the attributes for which you want to see friendly name outputs in the attribute list. This is done with the menu option Tools - Options - LDAP Settings - Distinguished Name with RDN Output:
There is no distinguished name attribute for which the friendly name output is activated by default.
Maybe a good candidate for this would be the member and the memberOf attributes, this could make the group membership display more clearly. Here the result of setting the attribute "member" to be displayed with short RDN output in attribute lists: