[cflsystems]

It will select randomly "x" products from category and its subcategories. Lets say you have
Cat A
Subcat B
Subcat C

It will select randomly form all the products in Cat A + Subcat B + Subcat C
Subcat B and C will not have featured products - they will list the products assign to them, regular xcart behaviour

If you have
Cat A
Subcat B
Subcat C
Subcat D
It will list featured products for Cat A and Subcat C