It allows Zelda to turn into Sheik, and vice versa.
The move is based on The Legend of Zelda: Ocarina of Time where Sheik reveals to have been Zelda in disguise all along. Using the power of the Triforce of Wisdom, she is able to physically change her appearance, allowing her to disguise herself by changing her clothing, hair, eye, and skin color. The sound that plays when Zelda/Sheik transform is the traditional "secret revealed" and "puzzle solved" jingle from The Legend of Zelda series. When Sheik reveals herself as Zelda, she crosses her hands, while the final Triforce piece appears on her hand, and then spins toward the screen, revealing her to be Zelda.
In Melee, both Zelda and Sheik are loaded in the game's memory at all times, allowing the transformation to occur instantly with no loading required. In Brawl, however, the new character must be loaded from the disc mid-transformation, which forces it to take much longer; because this is true, if two Zeldas/Sheiks are using the same palette swap through glitch or team battle, transforming into the other player's active character will be essentially instant as the data is already loaded. While the intangibility during the loading can be useful for dodging Final Smashes and boss attacks, it has an unpredictable duration and makes the move much easier to punish on completion. The delay can be shortened in terms of game time by pausing or through a slow motion effect such as the Timer; if replay data containing either of these happening is saved, the game will pause in-replay to finish the loading. Forcing the game to load the next character through an SD card via hacking will result in a transformation time comparable to Melee's, due to SD cards naturally being faster to access than the game disc.