The idea of the filter is to exclude drops from enemies. Let's say you farm something but you have to regularly clean out your inventory because you keep getting things you won't want or need.
That's where said filter would come in. It could be based on category/item rarity and such things.
Categories could be Recovery Items, Equipment, Materials native to the enemy and such things.
Rarity could be Basic (White), Uncommon (Green), Rare (Blue) and Epic (Purple or Gold).
It could be implemented in the Options menu where you tick various boxes and then click Apply when you're done. Would make things way less tedious.