When you use average bitrate in 2-pass mode, the encoding will take twice as long. On the first pass, it won't write your movie to the hard drive. Instead, it will record a log file with statistics about the video. Then, on the second pass, when it does write your movie to disk, the encoder has a log file to use, so it doesn't have to guess. This means it can do a better job doling out bitrate, and you get a better quality video that's closer to the average bitrate you told it use.
If taking twice as long doesn't sound like a good idea to you, look towards the Turbo checkbox. By enabling this, when encoding 2-pass with x264, you can cut down the time of the first pass by 50%-75%. There will be a drop in quality, but so slight as to be imperceptible to the eye.
