What does ENABLE_BITCODE do in xcode 7?

Bitcode refers to to the type of code: “LLVM Bitcode” that is sent to iTunes Connect. This allows Apple to use certain calculations to re-optimize apps further (e.g: possibly downsize executable sizes). If Apple needs to alter your executable then they can do this without a new build being uploaded.

This differs from:
Slicing which is the process of Apple optimizing your app for a user’s device based on the device’s resolution and architecture. Slicing does not require Bitcode. (Ex: only including @2x images on a 5s)

App Thinning is the combination of slicing, bitcode, and on-demand resources

Bitcode is an intermediate representation of a compiled program. Apps
you upload to iTunes Connect that contain bitcode will be compiled and
linked on the App Store. Including bitcode will allow Apple to
re-optimize your app binary in the future without the need to submit a
new version of your app to the store.

Apple Documentation on App Thinning

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