It stops silver melee edged weapons, sometimes. Also you can't have bone level upper body, upper arm and foot armor.
the biggest downside for me is the inability to assign it to dwarves correctly.
To get them equip bone, you have to tell them to wear generic "metal helms", and then copper helms from goblins or adamantine/steel helms for your regular melee military start appearing and dwarves start getting attached and soon everything is messed up and everybody is running back and forth hauling stuff and nobody knows who wears what.
Actually, if you assign them to equip white
generic "metal helms" (since you can pick colors for uniforms), they'll ignore anything that's not bone, shell, silver or aluminum (had an artifact aluminum breastplate once... that was one shiny archer...). So, as long as you don't have any silver armor floating around (and really, why would you?) your dwarves will happily go ahead and equip the only white stuff they can find: bones and shells.