What does the "Portal funnel" option do?

Solution 1:

When you perform a fling, or when you're falling from the ceiling to the floor repeatedly to get the Terminal Velocity achievement, do you notice yourself being pulled toward the center of the portal you're falling into?

That's funneling: the phenomenon of being drawn toward a portal even though you may be a slight distance away from its center, such that you would have landed on the floor instead of passing through it had you fallen straight down. It's akin to filling a bottle by pouring the liquid through a funnel to ensure that it doesn't spill out of its narrow bottleneck:

Funneling is most useful during high-speed maneuvers such as flings where you don't have a lot of air-time to aim yourself directly at the portal into which you're hurtling. (Suddenly the description given by the Options dialog makes much more sense.) If you disable this option, you're more likely to land on the ground rather than make it through a floor portal if you're off-center, forcing you to have to attempt the fling again.

This option corresponds to the sv_player_funnel_into_portals variable in the console (which, by the way, has a much better description IMO):

"sv_player_funnel_into_portals" = "1"
 game archive replicated
 - Causes the player to auto correct toward the center of floor portals.

It also exists in Portal 2, enabled by default as with the first Portal, but isn't accessible in the Options menu so you have to set it using the console. As with most other Boolean settings, 1 is enabled and 0 is disabled.

I'm just going to leave it enabled in both games, even though I'm apparently good enough with portal flinging to not notice anything different in normal gameplay.