stpug has it correct.
The fill % can also come into play as well. Here is how the two settings (use equal batches, and Fill %) interact...
Lets say you need 7 gallons of sparge water to hit your pre-boil volume, and your tun, with the grain already mashed, can only handle 6 gallons when filled to the very top
Fill to 90% means only fill the tun with 5.4 gallons (6 * 0.9) so you have a little head room.
With the "Use equal batches" set to NO, Beersmith will calculate one 5.4 gallon batch, and one 1.6 gallon batch to make up your 7 gallons.
With the "Use equal batches" set to YES, it will calculate 2 batches of 3.5 gallons each.
I have found that I need to use a bit of common sense when the setting is set to 'NO' because I have seen the software calculate a second batch size of less that a gallon, which was not practical on my system.