It refers to how accurate you can apply VRS to a scene, the following article explains it nicely:
The team at The Coalition haven’t stopped innovating since bringing Tier 1 VRS to Gears Tactics, and have brought Tier 2 VRS support to both Gears 5 and Gears Tactics. The team saw similarly large perf gains from VRS Tier 2 – up to 14%! – this time with no noticeable visual impact. See for […]
devblogs.microsoft.com
Basically, Tier 1 VRS has a larger visual impact, while Tier 2 VRS has very little impact on visual quality, while giving the same performance benefits. Frankly Tier 1 VRS was not great, while Tier 2 is actually pretty good.
It is not a "secret sauce" or anything like that, all Turing/Ampere Nvidia cards have it as well as RDNA 2 cards.
The following image demonstrates the image quality impact it has:
https://cdn.knightlab.com/libs/juxt...html?uid=4c7efa4a-193b-11ea-b9b8-0edaf8f81e27
Basically only noticeable at 200% zoom, but regular gameplay (especially in motion) it's basically impossible to see.
As far as I know, the only game to confirmed using it on the Xbox Series consoles is Gears 5. Even Hitman 3 does not have it implemented yet (only tier 1 on the PC side, for Intel integrated GPUs).