This button only applies to the passwords after they have been entered.
Passwords are normally hidden from view in an endeavour to ensure that no one can read them from over your shoulder. Clicking this button will reveal the password.
The button is a toggle so you can click it again to hide your password.
The New Password panel is displayed by default however if the user does not wish to change their password they will need to toggle the Change Password control to No.
If they are using a One-Time-Password then this panel cannot be hidden.
Save will validate all the fields on the form except the new password fields if the user has selected not to change their password. If validated, the changes will be applied.