CTCSS and DCS squelch tones are used in analog, FM, conventional mode. The "equivalent" in digital mode (which the 164 doesn't can monitor) are NAC codes. Basically, a low frequency tune sent with a transmission.
Simply put, imagine an area where the RF spectrum is crowded. By using CTCSS or DCS tones, you can (as a transmitter- say a PD dispatcher) speak on a certain frequency and anyone listening on that freq can hear you. With these tones, it allows many different organizations to share a freq and only the people with similar CT or PL (DCS) tones can hear the transmission.
For instance: If Agency A and Agency B are 5 miles apart and both share the freq 123.4560MHz, one could use a CT tone of 103.5 and the other use 206.5 (for a list of the available tones see here:
http://en.wikipedia.org/wiki/CTCSS ). So now only Agency A, with CT 103.5, is hearing anything broadcast on 123.4560 CT 103.5 and any user w/o that CT programmed in couldn't hear the tx (except for those with none programmed or scanners who can monitor them). Or one agency could use DCS and one could use CTCSS.