This article explains the function of the Variable Bit Rate Encoding (VBR) option in iTunes.
When the Use Variable Bit Rate Encoding option is enabled in iTunes Preferences, iTunes automatically raises and lowers the compression bit rate in order to keep a consistent level of quality. For example, if there is a point in the source music that contains a wider range of frequencies, iTunes increases the bit rate. Conversely, if there is a point that contains a narrower range of frequencies, the bit rate is decreased. iTunes does not allow the bit rate to go lower than the bit rate settings you've chosen.
See this document for steps to access VBR settings for a Mac, along with additional custom settings. See this document for steps to access VBR settings in Windows, along with additional custom settings.
The MP3 encoder has a Quality pop-up menu lets you choose how strictly you want iTunes to maintain bit rates that provide a particular quality. Higher quality settings use higher bit rates, which create larger files but with higher quality music playback.