What sort of hinge is this

Yes you can do this.

You need a hinge cutter:

For best effect, use with a drill press if at all possible. You can accurately set the depth of cut and keep it perpendicular to the panel.

As long as the material you are using for the door is thick enough at the location where you need to place the hinge.

To directly answer the question: The panel release allows the hinge to be separated into two parts, so the door can be dismounted without removing the screws and later snapped back into position. (Essentially, it gives you the same capability that removing the hinge pin would in a more traditional design.)