'Plausible deniability' is a legal term. The concept is of a denial that is plausible and therefore cannot (without other evidence) be disproved in a court of law. In the present case, the intent is to disguise the fact that Eraser has been used by using (deleted) copies of files that are already on the computer to overwrite the files that are being erased.
As I use Eraser only to protect my own legitimate interests, I have no reason to disguise the fact that I use it, and therefore do not use the plausible deniability feature. I can imagine circumstances in which it could be used legitimately. However, as those circumstances would be ones in which the hard drive in question might be the subject of detailed forensic investigation, they are probably not relevant to the great majority of Eraser users.
As a case in point, after a normal Erase, Recuva would report that a file was "erased", with the garbage filename which Eraser generates as the file reported as "recoverable." Data is however already irrecoverable at this point.
Having plausible deniability would cause Recuva to not even report that the file was erased, instead, it will report as the file which was copied over was insecurely deleted. The filename is the one here that is plausibly deniable, and to add to the "legitimacy" of it, the contents of the file used as a decoy is preserved.