Automatic bidding is sometimes referred to as proxy bidding. It allows you to set a maximum price that you would like to bid, and the auction will automatically increase you bid up to this price as other people bid on that item.
To turn on automatic bidding you need to adjust your auction menu item parameters. You should also set this in your component options.
So now as an example, if I bid on an item which has a current bid of $8 and min bid increment of $1, and set my maximum bid to $15
It records my bid as $9 (current bid plus min bid increment)
And it records my maximum bid of $15 in the database.
So now if another person comes along and bids $10
It tells them that their bid is not accepted, and it automatically bids on behalf of the first user, increasing their bid to $10
You can see in the database the how the second bidders bid has been recorded, then the automatic bid for the first person.
And you can see the bids in the bid history
However, if the second person bids more than the automatic bid amount (eg $16), their bid is accepted as per normal (assuming it is the min bid increment higher than the other bidders max bid).