This option determines how many windows of audio are analyzed for each plot update in the spectrum bar. If averaging is zero, only one window is analyzed per update and averaging is effectively disabled; this maximizes responsiveness, but at the cost of jerkiness. If averaging is one, two windows (overlapped by 50%) are analyzed per update, resulting in a slightly smoother plot, for a small cost in terms of increased latency. Bigger averaging values make the plot smoother, but less temporally accurate.
Averaging interacts with window size to determine responsiveness. Even with averaging disabled, smaller window sizes still give better responsiveness (and worse spectral resolution) than larger ones. Note that a large averaging value combined with a large window size can cause excessive CPU overhead, particularly if a filled plot style is selected.