The Saturation blending mode applies the saturation of the blend color to the base image while retaining the hue and luminance of the base image. Neutral tones (black, white, and gray) in the blend will desaturate the base image. Neutral areas in the base image will not be changed by the saturation blending mode.
The Saturation blending mode is one way of creating the popular partial color photo effect where the focal point of an image is left in color with the rest of the photo in grayscale. To do this you would add a layer filled with gray, set it to the saturation blend mode, and erase from this layer the areas where you want color to come through. Another popular use for the Saturation blend mode is for removing red eye.
