In the context of SimLeague Basketball, normalization refers to adjusting player shooting percentages (2 point and 3 point) by comparing the player's percentage to the league average for that season.
In the SimEngine, the actual process is a bit more complicated. When a player takes a shot, we compare the shooter's percentage to the league average for his season. We also take the shooting percentage allowed (related to defensive rating) for each defender and compare that to the league average for that defender's season, with more weight placed on the defender guarding the shooter.
In effect, a player who shot poorly in a season where the league average was also low may shoot better when playing against players from seasons with higher shooting percentages, and vice versa. It is important to note that the player's actual shooting percentage, as opposed to his normalized shooting percentage, still accounts for more than half of the end result. This is reflected in the # numbers.