Baked VAE means the VAE is included in the model file so if your VAE setting is on automatic then the baked(included) VAE will be used.
If you don't know what a VAE is: https://www.reddit.com/r/StableDiffusion/comments/z6y6n4/whats_a_vae/
You usually want to make sure whatever VAE you're using is a good match with the checkpoint so that the resulting image isn't washed out or slightly distorted in some way. Baking in the VAE can be a good choice for model creators so that users of their model will always have a good matching VAE for it. I assume this is a point of controversy though since baked VAEs can be wasting drive space for veteran users who already have the same VAE file separate from their checkpoints.
in short, VAE helps with good color. baked VAE means the creator mixed a VAE with the model so you don't have to download any VAE model separately