These are smooth preview modes, 1 is default and will show the model as is, 2 shows the smoothed version along with a cage, 3 shows you a smoothed version only. This is handy when modeling as you can switch back and forth quickly without increasing the poly count. It probably looks weird in smooth view because the model isn't built to hold its shape whenever any smoothing takes place.
Mental ray will render the smooth preview so it's not just a realtime preview thing. And I wouldn't say it's specific to organic models either, hard surfaces are often smoothed as well to avoid razor sharp "cg" looking edges.
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