In general video switching in the receiver, regardless of the format (composite, s-video, component, HDMI), is purely for convenience so that the receiver can switch audio and video at the same time.
Many receivers however also 'transcode' from one format to another; ie if you have one source device using s-video and another using component video with only component video cables going to the TV, the receiver will convert s-video to component. The higher end receivers can now do that for HDMI as well so you can use a single HDMI cable from the receiver to the TV.
Normally this is all just pass-through switching (video is neither improved nor degraded), but some receivers are starting to incorporate scalers to change from one resolution to another. Some will argue, but in my book that is a feature that is not useful as the TV will scale if necessary.
