This is needed for Flake-based setups where you use some NixOS modules that aren't in Nixpkgs (home-manager being the most common use-case).

There's a short explanation in this section: https://nixos.org/manual/nixos/stable/#sec-option-types-submodule (look for specialArgs) and in this section: https://nixos.org/manual/nixpkgs/stable/#module-system-lib-evalModules-param-specialArgs. I don't know whether it's documented properly somewhere.