It basically entails flattening daily and seasonal peaks into demand valleys, shifting the load to off-hours and reducing the quantity of power consumed in lower-value or less critical uses. It's peak demand, rather than average demand, that drives capacity decisions at the margin (I'm simplifying a bit, since knowing the consistent "base load" is also important and different types of generation are typically used for base load and peaking).

When pricing is set at a flat rate regardless of use or time of day, there's little incentive for demand management to happen, triggering unnecessary capacity additions (the cost of which is borne by all) or brownouts.