It's so you can hand over your car to a parking valet or parking attendant without them deciding to go for a joyride in your pride and joy at triple digit speeds among other things.
What it actually does depends on the year and model, but among other things it can do:
Locks the trunk and disables both internal and external releases until someone turns valet mode off (either by hitting a hidden switch, some other method or putting in the regular key - post-XJ40, pre-Callum Jags come with a valet key, it has a green head on the newer cars) so nobody can pillage your stuff.
Limits the car to 50% max performance or less, 50-65mph or less, and limits range per session to 3 miles.