Often analysts want to collapse categories of a categorical variable. For example, a seven category race variable might be collapsed to three categories, White, African American, and Other. This option facilitates such operations, as well as allowing users to identify missing value codes. When you select this option, the following dialog box appears:

You have the choice of modifying the original variable (just select the checkbox in the top left), or creating a new variable. If you are not modifying the original variable you must enter a name (up to seven characters) for the new variable.
By default, AM will automaticaly generate value labels to remind you of the mapping between the original variable and the new coding. Unchecking the checkbox (Auto-Generate Value Labels) prevents AM from creating these labels.