Does anyone know what the new favorites option does?

One of the filters allows you to just show favourite items. If you have items you use regularly that tends to get buried under random other stuff, you can mark them as a favourite, then just go straight to that filter to have immediate access to just those items. It's just another filter option to make it easier to find stuff.

For instance, my main's favourites are Potions of Plentiful Needs, a cat wand and wellness treats, and Glimmerstone. Since he's a gardener and tends to have about a zillion harvestables around at any given time, it's useful being able to jump straight to those items!