I actually wasn't aware of that function. So I just tried it, and it doesn't work for me.
I have a coupon for 20% off set to be for only one category of products, and I have the "Coupon percentage applies to product only" flag set to yes.
If I add a product with a price of $500, that is from that category, and I apply the coupon code, I get a discount of $100. That is correct. If I then change the cart and add in several items from another category that total $100, the discount is now $120. The discount is still being applied to the whole cart, not just the items in the category associated with the coupon code.