from Help:
Assigns a project name to the current drawing.
Used when an xref, image, or DWF underlay file is not found in its original path. The project name points to a section in the registry that can contain one or more search paths for each project name defined. Project names and their search directories are created from the Files tab of the Options dialog box.
Project names make it easier for users to manage xrefs, images, and DWF underlay when drawings are exchanged between customers, or if users have different drive mappings to the same location on a server.
If the xref, image, or DWF underlay file is not found at the original path, the project paths associated with the project name are searched. If the xref, image, or DWF underlay file is not found there, the AutoCAD search path is searched.