What kinds of scenes are best suited for this function? We set the noise reduction effect to Auto and took some photos in outdoor settings.

* Focal lengths are equivalent to those of 35mm film cameras.

With noise reduction On, our images had less noise and looked smoother. Noise tends the get in the way of the gradation of a sky at sunset, but this function did the trick and cut down on the noise, as you can see in picture 1.
It's also a big help in limiting noise when you're shooting night scenery, like pictures 2 and 3. Setting the sensitivity to 3200 increases shutter speed, so you can use a fence or wall for support instead of a tripod.