Ok, so let me start by answering the ORIGINAL question on the thread.
Schun asks: "Could someone please explain to me whats the difference between Front Page and Posts Page in Reading Options on WPMU admin?"
The first option, controls which page to show if the user navigates to the base URL for the blog. (That's the front page option). So whatever page you choose here will be displayed when the user navigates to "http://blogname.domain.tld/" if you are using subdomains or "http://domain.tld/blogname/" if you are using subdirectories.
Simple enough, right? This functionality replaces some of the plugins that used to be required to replace to do front page replacement.
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Ok... Now what about that other option?
Well, this is kinda crazy, and I didn't know exactly what it did until I looked at the code... but basically, what ever page you set as the "Posts Page" will now, take the functionality of what used to be the home page. What? yeah... trust me, I looked at the code.
So let's say you made a page "foo" and so if you've never changed these options then the URL "http://blogname.domain.tld/foo" would show that page content. Well, if you go and change that option, then the URL "http://blogname.domain.tld/foo" will now show posts.
Bonus points for whoever can answer this question: What template page does it use now? (I don't know, I haven't dug through the code yet or tested this... I'll let you know when I find out.)