MakeRoom is invoked when your inventory is full, and pops up a window with the least valuable grey items in it. The grey items are sorted from least valuable to most valuable. You can destroy the items from the MakeRoom window, by shift-clicking or dragging, to create space for more valuable loot items.
There is a configuration tab on the Blizzard Interface Addons menu to set the item quality that should be considered for discards: poor (gray items), common (white items), and uncommon (green items). This will default to poor quality, but can be set to higher quality if desired.
If you have "Informant" loaded as part of Auctioneer, MakeRoom will use that to get the item prices. If not, MakeRoom uses ItemPrice for vendor prices.
MakeRoom currently has localizations for enUS, esES, esMX, and deDE. If you can provide translations for the messages for any of the other locales, or want to correct the strings for the existing locales, that would be most appreciated. The webpage to translate the strings is at http://wow.curseforge.com/projects/makeroom/localization/.