Circular logging is the process of truncating logfiles as soon as they have been committed into the database. Normally, logfiles are only truncated after a full back. This allows you to restore a database from an earlier time and replay the transactions up to the latest available one.

Normally there's no need to enable circular logging but it can come in handy to quickly free up some disk space; although we would prefer extending disk space for a full log drive over enabling circular logging. Another point of attention is that using circular logging comes at a cost, if you need to restore a database from an earlier point in time you won't be able to recover to the time when the database failed, inevitably leading to data loss.

That is also one of the reasons why Microsoft recommends only enabling circular logging when you have at least three additional database copies.