I downloaded the manual because I've never heard the term 'tone in/out'.
In effect, it would be what most manufacturers refer to as 'direct' mode - the analog signal is passed straight to the amplifier with no modifications whatsoever. The result though is that bass management will not be applied because like most every other AVR, it performs bass management in the digital domain.
If Tone In is set, you can adjust bass and treble, but if the source is analog, it will be converted to digital, the adjustments made, and then back to analog before amplification.
If Tone Out is set it will be 'flat' (and the manual even say so). This is different than other AVRs where normally if you want the output flat, you have to specifically set bass and treble to 0 (but it's the default anyway if you haven't made any changes). It could be a useful feature if you wanted to compare flat vs adjusting bass and treble. Instead of having to constantly change bass from say +2 to 0 to get back to flat, you could set Tone In and adjust the bass, then switch to flat just by setting Tone Out instead of changing the +2 back to 0.