First answer from one of my buddies:
"
Simple answer from this thread:
http://forums.radioreference.com/industry-discussion/264196-frequency-step-settings.html Frequency (or tuning) steps (2.5, 5, 10, 15, etc) is the increment that the radio tunes when you tune the VFO dial. If you have 5 kHz steps and your VFO is set at 145.000 MHz, when you turn the dial it will go to 145.005, then 145.010, etc. If you had 20 kHz steps then tuning dial would change from 145.000 MHz to 145.020, then 145.040, etc
From Section 7.5 -
http://codegreenprep.com/2013/04/tips-on-how-to-best-configure-and-use-your-baofeng-uv-5r/ If you wish to scan a block of frequencies (and remembering that these radios are not at their best as scanners due to slow scanning speed and lack of sophisticated scanning features) you should consider what frequency step setting you have. The radios can be set to move from as little as 2.5 kHz up to as much as 25 kHz for each step while scanning and tuning.
If you set it to 25 kHz and a sophisticated opponent is using nonstandard frequencies for his own radio communications, you might skip right past his frequencies and never detect them.
For this type of purpose, it is better to set the frequency step low."
