yeah, cocktail mode should really be called "split screen mode" or something other than cocktail mode (although I understand why it's called that)
Only certain games support true cocktail modes (ie, screen flips back and forth as players alternate turns) settable with a dipswitch. The main headache with that for the mame devs is that the controls also have to switch between players with the screen, so the game itself must have the code to switch controller inputs. This has got to be a lot of work to truly test out, since you'd need 2 sets of controls. I've run into a couple games where the screen flips, but the controls don't.
This cocktail mode video setting is a way for simultaneous multiplayer games to be played on cocktail machines by dividing the screen in half and providing the proper view for each player from their positions at either end of the table. This is a way for people like me, who only have a traditional head-2-head cocktail machine, to play Joust, as otherwise one player would be looking at the screen upside down. I personally love that option, although I wish I didn't have a standard res monitor-Joust gets very, very tiny on my 19" screen.