Tone-outs are audible tones that activate a receiver. The receiver stays silent until the tone-out activates it. (I believe the receiver must be parked on the service you have assigned a tone-out. In scan mode it doesn’t work? Corrections welcome.) Basically, it turns your scanner into a tone activated pager.
I was presuming he no longer hears the tone and voice transmission alerting responders to a call for service. "Tone-outs" (with the S) is jargon for tone and voice paging among many other phrases. "Knock-out", "Tone Alert", "Tone drops" are among others.
"Fire Tone Out" is a feature found on many scanner models that allow a scanner to function similar to a pager. As you describe, it silently listens to the frequency on which tones are broadcast and when the appropriate tone group is received, the scanner will open the audio circuit so that the remainder of the dispatch is heard. The audio is closed after a predetermined time.