Well I worked it out very easily.
As soon you check the box "write changes to xmp" in File Management in Preferences, LR will do a big rewrite of the library and adds xmps to all raw files (I'm presuming these are independant of the Library and are updated by the library - i.e. the info is also stored in the library and not just the xmp).
Then when you import old RAW files from folders with Camera RAW xmp files, then all the develop settings (as best translated to LR?), ratings, keywords are imported to LR.