Gratuities are charged per day to your cabin. So for instance, if you ask for an account summary mid-cruise, you will see the $10 charge for each day so far. You can request that these be removed or not charged at all. But keep in mind that you will probably eat in a different dining room each night, with different waiters at each meal. So really the automatic tips, which are pooled for the entire crew, ensures that the waiters get tips instead of being stiffed. You don't have to remember who to tip either. As far as incentive for the waiters is concerned, I found that on the occasion when I had a slow waiter, a stern look in the direction of the maitre D' did the trick. They seem to know how to read passenger's facial expressions very well and sure enough I'd see the waiter in conference with his boss.
If you decide to eat in the same dining room and request the same waiter throughout the cruise, you can request that the automatic tips be adjusted and tip in cash. The $10 includes your cabin steward too and the rules are the same. If you want to tip in cash, they will adjust or remove whatever amount you want.
Personally, I like the automatic tips. Saves having to figure out how much cash to set aside. If someone provides really great service, such as my cabin steward or a particular bartender, I give them a little extra in cash at the end of the cruise.
Cruisemates has an excellent article somewhere written by Anne Campbell(sp?) that describes exactly how it works.