You are correct. Muting a conversation archives it and any new emails that fall under the conversation (same subject) will skip the inbox and be archived.

I'm guessing you might be stuck on this next part though, as it seems to lessen the value of the feature itself.

Muting a conversation does not work if your email is in the To or Cc field.

So, if you're on an email with 5 other people and they're all doing reply-all, you're still stuck.

You are correct. Muting a conversation archives it and any new emails that fall under the conversation (same subject) will skip the inbox and be archived.

I'm guessing you might be stuck on this next part though, as it seems to lessen the value of the feature itself.

Muting a conversation does not normally work if your email is in the To or Cc field. However, there is now a feature in Gmail Labs called Smart Mute that will keep a thread archived as long as your email address was not added to the To or Cc after you clicked Mute.