Auto page size versus a standard size
Auto gives each page the dimensions of its image, converted at 72 points per inch. No part of the image is hidden and no empty space is added, and a mixed set of portrait and landscape photos simply produces mixed pages. This is the right default for a photo album, a set of receipts, or anything that will only ever be viewed on screen.
A standard size is what you want when the document will be printed or filed. A printer feeds sheets of a fixed size, and pages that vary get scaled inconsistently or rejected. A4 is 595 × 842 points and Letter is 612 × 792, and choosing one means every page in the output matches it regardless of what the images were.
The moment you fix the size, the aspect-ratio mismatch appears and the fit setting starts to matter. That is the trade: auto guarantees fidelity and irregular pages, fixed guarantees consistent pages and requires a decision about the mismatch.