This is for applications that put the terminal into a specific mode (or modes) that don't work. The example given in the patch linked to is man, but really it seems to be an issue with most pagers. What the patch does is hook into that mode being set and start translating mouse scroll events to arrow key events. The easiest way to see the problem is to run "man man" and try to scroll up, then scroll down. Up looks like it works because iTerm is saving that output, but scrolling down doesn't. If you do something like "less +200 rfc1918.txt" to start in the middle of the file you'll find that you can't scroll up either.
The advantage of putting it in my .vimrc is that I have mousewheel scrolling on the server no matter what computer I log in from.
The disadvantage is that I'm locked into vim and it won't work for someone using, say, emacs.