The TRAF button, when left on, will search for RDS radio stations broadcasting that they have a traffic report...
It's quite common on Classic Prius for the TRAF button to be on, and that causes all sorts of audio "issues" - You go to play a tape or CD, and when you go back to the radio its on a different station than you last listened to (and almost always a station that you hate ;-) ). Or, the radio cuts into your tape or CD, and plays nothing of importance...
I've only heard of it working once, and that was from my mother who has a 2002. For a couple of months while she was driving to work, her CD would stop and the radio would go to some rock station and play a traffic report, and when the report was done her CD would continue. Just as quickly as it started one day, it stopped working, and had the above annoyances... so she turned off the TRAF button.
(RDS is what gives you the FMType screens, sorting the stations into music categories and displaying station IDs and the like, if the radio station broadcasts the RDS info, anyways...)