In addition to the standard PASM and scene modes, the LX5 includes two slots on the mode dial for custom settings. The camera also provides Panasonic's Intelligent Auto mode, which performs automatic scene recognition and optimizes stabilization, ISO sensitivity, AF mode, exposure, and red-eye settings. New to the dial is My Color mode, which provides quick access to various color-based special effects presets. Not sure that's really necessary, but the direct movie recording button is definitely a welcome addition.
Unless you have a specific target aspect ratio for your final photo and don't plan on using the photo for anything else, I'd stay away from using the switch and crop the photos in software. The native aspect ratio of the sensor is 4:3, and anything else is simply a lower-resolution crop.