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It makes sure that all ATM packets that come from the DSLAM to you and from you to the DSLAM are not corrupted, and if any are, it forces a re-send.
Having Interleaving off may introduce packet loss depending upon how clean your line is. If it is a rather clean line, packet loss may be as low as 3%, but if it is a dirty line, packet loss may be as high as 50%.
Having Interleaving off does have its advantages though. It lowers your ping times for instance, and also makes playing in multiplayer games more enjoyable since multiplayer games don't require that all packets reach the destination.
Also read About DSL for lots more information