I had to look this up, and it appears in this context, "fallback mode" refers to "sort of a failsafe mode, which should kick in on machines with unsupported graphics cards".
I guess it turns of compositing and such modernities.
Basically: some GPU drivers are not good enough to run Gnome (it was way worse about 2 years ago), some old machines can't deal with the software rendering (that is not available for all the platforms, it's only for x86 and ARM -I think-), and there is some performance impact when running 3D apps on Gnome 3 (I've noticed that myself, my laptop fans go berserk!).
Besides the fallback mode was used by some users that were looking for a Gnome 2 alike experience, but apparently that was not the reason of fallback mode to exist.
The idea is that by dropping fallback, people can change gnome-panel and metacity as they wish. Meaning: making it work (and look) more like GNOME 2.
I'm not sure if this is entirely feasible in practice. Actually fallback mode consist of various changes in loads of projects. I'm guessing it'll be broken pretty quickly in GNOME 3.7.x. The intention was still that you could still get a more GNOME 2 experience by not needing gnome-panel+metacity for fallback mode... but after all the investigations, not sure if that can still be achieved.
I guess it turns of compositing and such modernities.
http://library.gnome.org/users/gnome-help/3.3/fallback-mode....