The official server docs that talk about these level variable settings (and about the rcon protocol in general) are located here: http://static.cdn.ea.com/dice/u/f/bfbc2 ... tor_v2.zip
When a server is "Modified" that means it shows differently in the Game Browser, Correct?
Yes, that's correct. It has a different icon, and players can filter by this.
If so, would it only show Modified while Squad Deathmatch was running but normal while the other map modes were running?
That is the behavior that I would expect, but I don't know if it does it right. You'd have to test this
Also, Someone posted that it only works on un-ranked servers. Do you know if this is still true?
As far as I know, it has always worked on ranked servers, and should still work in ranked mode. I tested these settings when they were first added to the game, and they definitely worked at that time.