What does the ECON setting actually do?

It changes the transmission shift points so that it shifts up sooner and it may also reduce the throttle response to save gas. Basically it simulates having an 85 year old granny driving.

It allows the transmission to lock up the converter for overdrive.

First, don't laugh to loud. When I read this, my mind went back to the cars of the '60s. In that era, when you selected ECON in the AC system it meant you wanted to disengage the AC unit to provide better gas mileage by reducing the load on the engine. The previous answers are better and probably correct for more "modern" cars!