It works as described in the creation window.
In Advanced Options, you may leave the tees at "Standard" which means, each tier plays his own tees, or you can fix the tees to one set for all. If you chose "easy", you will create one of the much-discussed "red tee" tournaments.
IMHO, with any fixed choice, the competition will be to the disadvantage of the lower tiers because then they have to match the big guys from the same distances but without their long-hitting clubs.
"Custom teeboxes" is a more rewarding option. There, you may set the teebox for each hole separately, getting the brain in action.
It works - have fun!