What exactly does an item's butchering level do? Does it make butchering faster, increase drops from butchering, or both?
drops only, afaik.
This is the first time I've heard it claimed that it ONLY affects drops. I've heard from fairly authoritative sources that it affects time (and some say that's all it affects), but I've also heard from fairly good sources that it affects time and drops - that is, there are three things checked for each possible drop, and if you get a net positive number, you get the drop, and one of them was butchering tool.
I don't remember the specifics anymore, but it was something like 0-N three times, where N was (dex - 12), butchering quality, and (survival skill - 3), and add up the results of all three and if wasn't negative you get the drop, so if your dex was 12 or higher, your butchering tool wasn't one of REALLY bad ones (only a very few have a negative number), and your survival skill was at least three, you always get all the drops. (Note that for CBMs, after it's determined that you get it, it then does a check to see WHAT you get, and "burned out bionic" is a big chunk of that list.)
My experience is that that formula seems to hold true, or at least, those conditions seem to hold true (the only time I don't get all the drops any more is right at the beginning of the game or when I'm freezing in the bottom of a lab and my dex is really low).