An escalation clause is more or less an auction style tactic whereby the you place an initial bid of lets say 500K (make sure this is not too low either because if no one bids the seller will balk) and then your bid increases by X amount up to a certain ceiling of x amount. The typical raising price is 1K and your ceiling is the highest you will pay.
The seller then considers all offers on a net basis, so items like seller paid closing costs, home warranties, etc are considered and then financing options are also taken into consideration. If the bid is escalated the listing agent is supposed to produce the purchase and sale agreements from other home bidders so you know you didn't just pay extra.
The sellers may just pick a price somewhere in between or even the ceiling price or your escalation bid because now they know your max price. Kind of a double edged sword but it can work to your advantage in a hot market like Seattle/ Eastside. Hope this Saneya!