As on film camera's it really is telling the metering system to add or subtract exposure. On previous film Pentax, Canon A1 it was under the rewind and on the same multi-level dial as the ISO. It was considered + or - an F stop by 1/4 F-stop.
Kodak added this on the first point and shoots It can be adjusted in a very Pentax way on a Kodak CX7410 with the front thumb dial using the Kodak jog shuttle front thumb wheel. (I like that by the way you click the front thumbwheel in until the triangle appears over the item you want to adjust through the viewfinder.)
On my K20D e/v appears to add or subtract the number of f-stops I asked it too.
It does not increase or decrease noise of itself. If you asked it to add +1 ev it will may push up or down the "apparent auto iso" for shooting and increase noise in low light.
Most people think the K20D and K10D optimize about -1/2 to -1 ev. Compared to Kodak digital point and shoot they are right. Compared to Tri-X pan in a Canon A1 or Pentax Spotmatic I think the K20D is right because it gives more dynamic room in post processing. I used to take advantage of that in spades on an enlarger to dodge out and burn in parts of my shot to get some shots that showed the crispness of Ansel Adams. (Not nearly the lovely composition though!) Now you do that in Photoshop...(with the Tri-X plug in

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