Magic Bulldozer is a cheat that enables the user to destroy anything including industries, lighthouses, etc. This can be useful if a town will not let you destroy a house for example when you want to build a railway through that tile.
However, this also allows town local authorities to remove such objects as well; therefore, it is not recommended to have this setting on for long to avoid losing things you might want to keep. (Note: this is no longer the case as of 27 Sep 2007 - see https://github.com/OpenTTD/OpenTTD/issues/1256)