How does auto Highlight all code works?

IIRC, that setting is there so it will apply code formatting/highlighting to space indented code and fenced code blocks. On Meta, that setting is not enabled.

Space indented

if (true) {
  this_is_formatted = true;
}

Fenced code block

if (true) {
  this_is_formatted = true;
}

Where as on my sandbox with it enabled, I get