BCE stands for 'Background Color Erease'. It's an attribute which your terminal
might support. It has to do with the way the terminal clears out characters on
a (re)draw of the screen.
Apparently, by default, this feature is turned off, so ncurses tools do not
know your terminal actually supports this feature, and revert to other ways
of clearing out unwanted characters: replacing them with a space.
Since most of the modern terminalemulators like xterm support BCE, it won't
harm activating it. You can see if your terminal already has bce enabled by
using a tool called 'infocmp'. You should see 'bce' somewhere
in the first line of output. Although your terminal might have bce enabled,
you might still have to enable the 'color' line in your .muttrc
Also see the manpages for terminfo(5) and screen(1) for some
information about BCE.
Also read Screen & mutt and the space padding problem.