It’s only for the case where there are existing users who have unlinked accounts on both WordPress and Discourse. The plugin uses the Discourse user_id to link the accounts. Until they are linked, it needs some way to associate the accounts. The option allows that to be done through the email address. Once the accounts are linked, it isn’t used anymore.
If that option isn’t enabled, the only way for users with existing accounts on both systems to connect them is to click the ‘Link account with Discourse’ link on the user’s profile page.
For accounts that are created through Discourse, the issue never comes up.
The easiest way to see how it works is to try creating separate accounts on WordPress and Discourse using the same username and email, then try logging in through Discourse with the setting disabled. Delete and recreate the WordPress account and try logging in again with the setting enabled. You’ll see what it’s doing.