If the %{login} flag is on when you connect to a world, and that world was defined with a character, password, and optional worldtype, TF will attempt to automatically login to that world.
Autologin is done by a hook defined in the standard library. The hook for the default worldtype uses TinyMUD login format; there are also hooks for "tiny", "lp", "lpp", and "telnet" worldtypes. You can also define your own LOGIN hooks.
See: hooks, variables, /addworld