Level select, also known as "Zone Select" for Sonic games since the levels aren't called levels, but Zones, is a menu from which you are able to access any level in the game, as well as:
This option allows you to search through (usually) a menu with a listing of different levels in a game then lets you choose whichever level you wish to play. Another very useful feature for debugging/development.
In Sonic 2, Sonic 3 and Sonic & Knuckles, enabling the level select cheat will also enable the reset/slow-motion/frame advance cheat. It will not, however, enable object placement or (in Sonic & Knuckles' case) gravity reversal, which require debug mode to be activated.