In what instance would you treat your tax withheld as paid (when it was actually withheld)? & what's the difference?

Working with a small underpayment penalty. I did some smaller freelance projects throughout the yea and personally withheld tax money throughout the year.. I did not file quarterly. When i treat as paid, both my federal tax due and my penalty are reduced. What is this action actually doing? There's not much explaination anywhere.