Water Soluble Topping is needed when you want to machine embroider on fabric that has a tendency to "swallow" stitches. This includes fabric types with high "hair" or loose weave, like Terry cloth, Fake Fur, Velvet, Corduroy, Knits, Fleece etc.
The film prevents stitches from sinking into the fabric, and it is dissolved in warm water once embroidery is finished. You will be amazed to compare "with" and "without" stitch-outs. "With" can be a gorgeous design, and "without" - bad or totally ruined piece of embroidery.