If I had to guess, from experience (and this is ONLY an educated guess), I think it's the order of check-in only. The time is just a guideline as to when they're supposed to check you in. In other words, if you have a 7:30pm reservation and show up at 6:00pm and they're extremely busy, they may not check you in.
When walkups are accepted, there seems to be an ADR-to-walkup ratio of seating. For example, let's say it's a 3:1 ratio. In this example, suppose there are 8 parties of 4 people. 6 of the parties have ADRs, 2 are walkups (WU), and there is a wait to be seated. The parties check in in this order: WU1, ADR1, WU2, ADR2, ADR3, ADR4. They would be seated in this order: ADR1, ADR2, ADR3, WU1, ADR4, WU2.
That's obviously an oversimplification, but as a systems and software engineer, I try and think of a logical algorithm that would serve this purpose and that's a basic version of my theory on how the disney dining system works.