You ignore all penalties specifically associated with riding
It is far from being crystal clear, but relevant part probably means
The character takes no [i.e. ignores] penalties [induced by the process of riding only, not each and every, obviously] to actions while doing so.
Penalties which come from riding are:
- -5 penalties for riding bareback and for riding an ill-suited mount
- -4 or -8 (halved with a feat) penalty on a ranged attack from a mount which moves fast
- non-numerical penalty in a form of inability to use a longbow from a saddle (this may or may not actually be interpreated as a penalty)
While ignoring -8 penalty on an attack is a realy huge benefit, the check DC is high enough to justify it. Still, maybe only penalties to ride checks were intended to be negated.
To me, similar situation to someone standing on mount is someone standing on a raft, which is moving downstream. This induces no penalty on a ranged attack for example.
Also, there is Halfling Outrider prestige class (Complete Warrior, p. 38), who has Stand on Mount ability, which is phrased in a very similar language, but explicitly removes penalties for shooting while riding.