Short answer. It lets the goods be transferred by transferring the paper. Where a document states that the goods will be delivered to the bearer or to the order of a named person, whoever properly holds that document can claim the goods and pass the right on.
What the law says
A document of title in which it is stated that the goods referred to therein will be delivered to the bearer, or to the order of any person named in such document is a negotiable document of title.
Civil Code, Article 1507 — Negotiable Document of Title. Read the full provision →
The magic words are "bearer" and "order"
Article 1507 gives a test, not a title: a document of title in which it is stated that the goods referred to therein will be delivered to the bearer, or to the order of any person named in such document is a negotiable document of title. What matters is the wording on the face of the paper. A warehouse receipt or bill of lading promising delivery "to bearer", or "to the order of" a named consignee, is negotiable. One promising delivery to a named person only — with no "or order", no "or bearer" — is not. It is still a perfectly valid document of title; it simply cannot be passed from hand to hand with the same effect.
Why traders care about the distinction
The practical value is that the paper stands in for the goods. Cargo sitting in a warehouse or on a ship can be sold, pledged or used as loan security without anyone touching a crate, because delivering or endorsing the document operates as delivery of the goods themselves. That is what allows a bank to finance a shipment against a bill of lading, and a trader to on-sell a consignment that is still at sea. A person who takes a negotiable document properly — for value, in good faith, and in the ordinary course — acquires a strong claim to the goods, which is precisely why lenders will accept the document as security when they would not accept a bare promise.
How it is transferred, and what the holder can demand
A bearer document passes by delivery alone: hand it over and the transferee is the new holder. An order document requires the endorsement of the person to whose order it runs, plus delivery. Getting that step right is not a formality — an order document handed over without the necessary endorsement leaves the transferee in a weaker position than he bargained for, holding rights that are incomplete until the endorsement is obtained. The proper holder may demand delivery of the goods from the warehouseman or carrier, and the bailee is generally protected when it delivers against surrender of the document. Which is also why the physical paper must be kept secure: whoever holds a bearer document is in a position to deal with it.
What negotiability does not give you
It is not a guarantee. The document evidences goods that may never have been shipped, may have been damaged, or may not match the description — negotiability governs the transfer of the right, not the condition or existence of the cargo. It does not defeat every competing claim; rights of a person who was deprived of the document, of an unpaid seller, or of the bailee for its lawful charges, may still be asserted in the situations the law recognises. It does not cure a defective underlying sale. Practically: read the delivery clause before you accept the document, insist on the endorsement where it runs to order, verify the issuer, keep the original secure, and have a lawyer check any financing arrangement built on it.