The dehumidify buttom is very useful in Tropical climates.
When outside humidity is very high, even with the A/C on your interior car windows will tend to fog (due to the excess humidity).
When this happens, the foggy windows are cleared instantly when you switch on this feature.
Once cleared, you may switch back to the regular A/C setting.
All Mercedes-Benz Recirc modes will allow 20% of outside air (only 80% of the interior air is recirculated). When the evaporator on my E320T failed, I had the system reworked to provide full 100% recirc air instead of just 80%. This does wonders to eliminate outside foul odors while driving. This alteration is very easily done.
In Germany and most markets Mercedes-Benz gave three options for the customers to install in their cars:
1- Only fresh and heated air (no A/C).
2- Regular A/C system with fresh and heated air managment.
3- Automatic A/C.
The U.S. always got the fully automatic A/C system, which, in reality, is less desirerable than the regular A/C system.
The regular A/C allow the driver more control. It provided independent left and right temperature control (for W123/W124/W126 cars). Also, the unit gave less problems in terms of reliability.