It effects if your weapon waves around realistically while you move the screen. It's a subtle effect, just try it out on both extremes sometime, and move your mouse around with a gun equipped. If you have it set to 0 (left on the bar) then your gun stays perfectly trained on the crosshair. It's a preference thing.
I don't know if it affects accuracy, though; anyone here know?
If it were possible to surgically implant a miniature computer in my head, and make it play Farcry, well... I probably wouldn't do it.