The HW T&L setting is still using Direct 3D to generate the graphics.
Normally transform and lighting calculations are performed by the computers processor. The word "transforms" refers to the conversion of three dimensional geometry data into the 2D version seen on screen (since a monitor is a 2D display, this is required).
Graphics cards that have T&L processors can handle these calculations themselves, which frees up the processor to do other tasks (animation, physics simulation, etc.).
The only visual improvement you could get from enabling T&L is if you originally had some graphics options turned down because your framerate was too low.
By enabling T&L, you can turn up more graphics options because your processor can handle more information.
But other than being able to render more objects on screen, there's really not much of an improvement. T&L doesn't improve textures or model complexity.
