Tow Mode is used, usually when towing a trailer of some sort, of substantial weight (not a light weight 10 foot utility trailer size).
When in tow mode, the shifting pattern changes. Basically, each gear shifts at a higher RPM. This keeps the gears from shifting in and out so much, potentially wearing them. Plus it keeps the torque of the engine up which is helpful when towing up hills or down hills. It helps hold the transmission in a single gear too.
When traveling in town where you are at stop lights and then up to 30 miles per hour speed, you may shift from 1st, to 2nd, to 3rd, to 4th. Then back down again before you reach the next stop light. In tow mode, it may only shift up to 3rd, but the engine is running with a higher RPM, allowing for more "power", quicker pick up, and less shifting.