Well
The whole idea of it was to add consequences in to a players actions. In character creation, there would be 3 levels of morale for fighting, diplomacy and theivery. You might have a few extra points, but for the most part if you added to point totals from one you took away from the others. This sits the characters predisposition and it could effect everything from reaction to the character to dialog options. A character predisposed to be a fighter would be more hostile in dialog while a diplomat would put a shinier surface on things. For all practical purposes, those options might mean the same things, minus a few modifiers to NPC reation, but the player would see them differently. However there is a bit more to the system then just that.
For example, let's say I created a fighter named Jellybean. Now Jellybean is a pretty simple person with an INT of 4 and he's fairly heavily predisposed toward violence. In the first town, he has to lie to someone so he/she doesn't know the nature of the Golden Monkey Entrails that Jellybean is seeking for a bar owner in Arroyo. Since Jellybean is not predisposed toward diplomacy, lying just then hurt him his overall morale. Since it was the first thing he did, in the game, he has a slightly negative morale and non-combative roles have a slightly negative modifier while his dialog options become slightly more hostile. At this point, the player really shouldn't notice a difference.
Now, in the first town is a viscious land baron that's been pretty cruel, Lord AutumnBottom. Jellybean hasn't really had a good day, so when he meets AutumnBottom Jellybean beats the crap out of him. I mean Beany really wipes the floor with the guy, but doesn't kill him. Of course, AutumnBottom leaves town in fear, and probably plays a part later, and the townsmen all love Jellybean. Even Beany's 4 INT is enough to realise that he helped these people and that they love him for it so his morale increases fairly drastically. Jellybean will receive positive modifiers to his skills, specially his combat skills, and receive better dialog options. The player may notice that he or she seems to be a bit luckier at this point.
Jellybean moves on to the next town and along the way is attacked by a raider. Of course Jelly defends himself and kills the raider in the process. Since he's predisposed toward violence and the raider attacked him, Jelly doesn't feel bad about it and perhaps is even a little happier for the relative ease of the combat.
Suppose a diplomat, perhaps named CheeseWeasle, was put into this situation. He didn't think twice about lying to that first guy, but instead of hurting AutumnBottom, CheeseWeasle talks him down a bit. The townspeople still hardly knows he exists, but CheeseWeasle feels better about himself. On the way to the next town, CheeseWeasle fights the same raider and after a pretty tough battle is forced to kill the raider. Because of the harsh fight and the unfortunate end, CheeseWeasle feels pretty bad. He's not predisposed to like combat so the death of the raider hits him like a ton of bricks. Despite feeling pretty good about himself earlier, CheeseWeasle isn't going to want to do a whole lot other than talk to people without a negative modifier.
I realise that's kind of an odd way to describe it, but that should give you the gist of it. The system, in case you haven't realised it, is intended to limit the ability of players to do anything they want. Because of this system, a fighter hopefully wouldn't be able to steal hundreds of Stimpacks in Junktown or be able to talk the Master into killing himself. He'll have to rely more on what he knows best. I think there was a bit more to it, but that's all I can remember at this point.
