The idea is that all students get to choose some of their courses before anyone gets to choose the rest of his/her courses. I.e. all students get a chance to pick the courses most important to them (usually the critical ones for their major) before those higher on the registration priority take up seats in those courses when choosing things like out-of-major electives.
However, it does seem odd that the limit for pass 1 is 17 units, which is more than a typical full course load of 15 units (UCB has a similar system, but the first pass is limited to 10.5 units). This may be less effective at keeping critical courses from being filled up with non-majors before frosh/soph students who need them for their majors can register for them. But if the departments can have their own registration priorities (e.g. lower division courses are reserved for frosh/soph students in pass 1), then that may not be too much of a problem.