This may sound like a dumb question, but what does the universal pose button in poser 8 do? I am wondering what it does.

There are some bits of code that try to apply poses for a rigged figure to a differently-rigged figure.  They get you in the ball park but tend to apply a lot of really wonky bends, like bending fingers sideways in particular.  If the bones of the target rig are aligned very differently from the original rig, it tends to make a mess.  Best used with Figure -> Use Limits enabled.

I tend to see feet distortions with Universal Poses applied.  Again, using limits enabled does offer some corrective action but not always.

does the universal pose button allow for poses for one character like Vicki 3 to be used for Vicki 4?

Yes, you can apply a V3 pose to V4.  However, as mentioned previously, the pose may not be exact and may possibly need adjustment.