The context sensitive help for the page describes how this field works (click Help on step 4 of the Edit Project Settings dialog box):
Holiday File Override
By default, the project uses the holiday file listed in the Servers tab of the Project Center Administration activity center. Click the ... button to open the Choose Holiday File Override dialog box to select a different holiday file to apply to this project.
It looks like we are missing a link to the holiday file though that kenc found in the Templates directory. I will make sure we add that to the Project Admin help topics for the project settings and the Holiday file field listed on the Servers tab for the selected NPCS server.
Let me know if there are any other questions - thanks! Marge