Ok, so how do you get the higher quality stuff. Are there training camps or something later in the game? Because from early game point this setting doesn't seem to make any sense.
Have you redesigned a model yet? Basically when you build on a previous model (or for that matter design a new model of the same type), if it turns out better than the old model you can designate the quality rating of both the new and old model, and then assign your OHQs to accept, tolerate, or reject a given quality of model, which affects the OHQ's makeup.
Let's break it down a bit with some examples.
Suppose you created the Rustbucket I, your first light tank design. Later, you redesigned it for a higher quality model after field-testing to produce the Rustbucket II. Further on, you decided the base quality of the Rustbucket line is kinda bad anyways so you designed a whole new model with brand new technologies, the Scrapheap I, your shiniest and best light tank.
Now you have at the moment two light armor brigades, the 1st and 2nd Light Armor. Both currently have a mix of Rustbucket Is and IIs, but the 1st is assigned to an important new front against a hostile and dangerous major, while the 2nd is moving against a less important minor regime. Let's also say that you have a decent selection of both Rustbuckets and Scrapheaps at your SHQ ready to deploy, though more Rustbuckets than Scrapheaps, and that you have ample logistical capacity to transport them all.
Right! So in this situation, you can set the Rustbucket I to be a Low quality unit, the Rustbucket II to be Regulars, and the Scrapheap I to be Elite. Then you can adjust your quality settings for the 1st Light Armored so that they Reject Low quality units, Tolerate Regulars, and Accept Elites. What will happen then is that the 1st Light Armor will immediately send all their Rustbucket Is back to the SHQ, while taking in Scrapheap Is to make good those losses. They WON'T send back the Rustbucket IIs, but if a Rustbucket II is destroyed, they'll replace them with Scrapheap Is instead of calling for more Rustbucket IIs. This gives you a high-powered, elite fighting formation.
Meanwhile, you make different settings for the 2nd Light Armored. They're on a less important front, so you don't want them to soak up the rare and valuable Scrapheaps, and you don't need anything better than basic tanks. So you set them to Tolerate Low quality, Accept Regulars, and Reject/Tolerate Elites. With these settings, they won't request Scrapheaps for reinforcements, and they won't send back the Rustbucket Is they already have, but will instead summon Rustbucket IIs to make good any losses they have, even if there's no more Rustbucket IIs but there ARE spare Scrapheaps and Rustbucket Is.
As you can see, it's entirely a player-driven, administrative thing that helps you control what units get sent to what formations, rather than an actual thing where certain troops are better trained.