The Plane Cut tool under the Select \ Edit menu is a variant of the whole-mesh Plane Cut Tool, found under the Edit tab. See that page for details about the Plane Cut operation.
The purpose of the Selection-based Plane Cut is to allow portions of a model to be cut without affecting the entire shape. For example, say you wanted to cut one ear from the bunny model. The image below-left shows the result using the whole-mesh Plane Cut - the entire model is affected. When initialized with a selection (middle), the Plane Cut is only applied to the selected area (right).
Note that if the cut plane intersects with the selection border, holes and/or other artifacts will exist in the result. Currently the tool will not prevent you from doing this.