No doubt someone will explain it better, but as I understand it this means that the centre rear channel is simulated using the two rears. My Yamaha 5540/430 is suppose to do this, but I don't yet have any discs in that format. That's due to change at Xmas.
The phamtom mode in 430 creates a centre rear sound from (rear Rt and Rear LT) without using an actual centre rear speaker. When you use an actual speaker (6.1 set-up) this is known as discreet. Any 5.1 discs or 6.1 can be used to produce phamtom 6.1. The idea behind it is that you can experience 6.1 sound without the need for that 6th speaker (like in small rooms, or room not feasible for that extra speaker). It is a very good comparmise.
I realised that I have a friend's LoTR with Dolby EX, so I tried that last night. I had to switch the receiver to 6.1 mode as it didn't auto-detect. I watched some of the Moria sequence, but can't say I noticed a huge difference. Listening conditions were not ideal as I had my 11 month old son on my lap and had to keep the volume down. It still sounds pretty good. I find it doesn't have to be deafening to get good surround effects, but volume adds to the atmosphere.
As I understand it Dolby EX 6.1 uses a matrix encoding on the centre rear in the left and right rears and the decoder extracts it from there. DTS 6.1 can have an extra totally separate channel which in theory should allow for better separation.