Email confirmation is the default authentication method. When the user signs up, choosing their own new username and password, a confirmation email is sent to the user's email address. This email contains a secure link to a page where the user can confirm their account. Future logins just check the username and password against the stored values in the Moodle database.
Manual accounts only
This method removes any way for users to create their own accounts. All accounts must be manually created by the admin user.
Users can sign in and create valid accounts immediately, with no authentication against an external server and no confirmation via email. Be careful using this option - think of the security and administration problems this could cause.