From http://wiki.vtiger.com/archives

Lead Conversion

In leads module once you click on convert lead button, a pop-up window will come. Here it shows that it is creating an Account and a Potential. But it is also creating a contact. After conversion it relate the potential to the account and by a weak link to contact.

The company name of the lead is used for account and potential name, you can edit the potential name but account name is not editable. After conversion contact name will remain same as the lead name.

If an account already present in the crm same as the company name then it will not create a account during lead conversion and use the existing one.

Creating potential is a optional task during lead conversion, it depends on you whether you want it or not.

If company name is not present in the lead then after conversion it will create potential and contact. It will not create account. In this case it relate potential to the contact.