[R-sig-ME] Allow.new.levels

[Atticus Harrigan]

Hello! I am wondering about the allow.new.levels option.
In the documentation it says:

|allow.new.levels|    
logical if new levels (or NA values) in|newdata| are allowed. If FALSE (default), such new values in |newdata|will trigger an error; if TRUE, then the prediction will use the unconditional (population-level) values for data with previously unobserved levels (or NAs).

I am wondering what is mean in the the last clause. Is this saying that it will set an effect as its general proportion of the outcome? Or would it be more accurate to say that it uses all the previously unobserved data and averages out their values?