V/Hz control in AVR is relevant if the excitation breaker is switched on when the generator speed is less than 90% of rated (while running-up) or when the generator terminal frequency goes below the stipulated limit due to any reason.
The V/Hz loop controls the generator terminal voltage at all times so that the V/Hz remains within limits preventing overfluxing (which is proportional to V/Hz)of generator / generator connected transformer core.
Load acceptance of the diesel engine is a major factor in diesel generator selection. Direct on line starting motors are sometimes very difficult for the diesel engine to maintain the engine speed which directly effects the bus frequency.
When the diesel engine speed reduces due to the large starting current of the starting motor, the generator voltage reduces due to the V/Hz. Reduced Voltage causes also reduction on the active power of the system. This is very helpful for the diesel engine to prevent stopping due to low speed and recover its speed back. So we can say that V/Hz is very helpful to improve the load acceptance of the diesel generator.
Usually V/Hz is adjustable on the generator AVR. You may adjust the settings according to your system requirements.