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Undervolting allows one to pass lower than stock voltages to their CPU. This benefits to this is that is can lower operating temperatures, and (because fans need not run as much) may save on battery life. It is possible to undervolt too much causing CPU instability resulting in slew of different crunch-bangs. You'll know if you've undervolted too much.
With the inclusion of the Liquorix kernel in #! Statler it is now quite easy to undervolt, assuming your chip is supported by linux-phc (e.g. Pentium M, Intel Core (2) Duos.)