The Multi Material is used when a proxy is created. When a proxy is made from geometry that has multiple materials assigned to it, V-Ray assigns an object ID to each geometry and automatically creates a Multi Material with the same ID and Number of the material.
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New materials can be added to the stack with the Add Material button.
Layers are listed in ascending order and can be reordered by clicking and editing its layer number. Materials can be assigned to layers through the drop down selection.