The policies what is to be done while the mechanism specifies how it is to be done. For instance, the timer construct for ensuring CPU protection is mechanism. On the other hand, the decision of how long the timer is set for a particular user is a policy decision.
The separation of mechanism and policy is important to provide flexibility to a system. If the interface between mechanism and policy is well defined, the change of policy may affect only a few parameters. On the other hand, if interface between these two is vague or not well defined, it might involve much deeper change to the system.
Once the policy has been decided it gives the programmer the choice of using his/her own implementation. Also, the underlying implementation may be changed for a more efficient one without much trouble if the mechanism and policy are well defined. Specifically, separating these two provides flexibility in a variety of ways. First, the same mechanism can be used to implement a variety of policies, so changing the policy might not require the development of a new mechanism, but just a change in parameters for that mechanism, but just a change in parameters for that mechanism from a library of mechanisms. Second, the mechanism can be changed for example, to increase its efficiency or to move to a new platform, without changing the overall policy.