NC Output Smoothing - Controls the type of moves that the output NC code can contain:

None

Output moves in the toolpath as determined by the part geometry.
 

Line Arc

Where possible, fit arc moves (typically G2) into the toolpath to replace curves described as a series of straight lines.
 

Spline

Where possible, fit arc and spline (typically G1.01) moves into the toolpath to replace curves described as a series of straight lines. Only available with a Code Generator supporting this option.

For arc moves, see this note on bulge correction (from the Code Generator online help).