This property says that the effect set for an object/object collision should be used.
For example, when a projectile hits a surface, you can set if it emits an effect in the MaterialManager. HasCollisionEffect allows you to turn this effect on or off per instance. Each attack material (bullet, bomb, etc.) has settings for each material it could contact, which is defined in the weapon's corresponding Game/damage_system/ file. For example, for the Sg44 assault gun, the sg44.con includes the entry:
rem * *** Solid Metal *** MaterialManager.attGroup 223 MaterialManager.defGroup 84 MaterialManager.damageMod 0.0 MaterialManager.setEffectTemplate RichoMetalDecal
So when an Sg44 bullet hits material 84, metal, the richochet metal decal effect is used. This effect is defined elsewhere as an EffectBundle in objects/Effects/Common/effects.con, which in turn pulls in named effects from other effects files.