Yes, if that setting is enabled, the accounts will become linked when they click the 'Login with Discourse' link. You can also embed the login link to the WordPress site directly on your forum.
If that setting isn't enabled, the login process can be a little confusing for users who have existing accounts.
The login process also isn't great for users who register through WordPress but don't have an account on the forum - when they complete their registration and go to the WordPress login page, they see the 'login with Discourse' link, but it won't work for them until they create an account on Discourse. Generally, I think the best flow for this feature is to get users to login to the website directly from the forum.
A link with this structure can be embedded on your forum: (I think this can eventually be simplified a bit, we should be able to get rid of the
<a href="https://scossar.com/?discourse_sso=1&redirect_to=https://scossar.com/testing-avatar-url/">Login to the Website</a>
If a Discourse user clicks on this link on the forum, it will create an account for them on the website and take them to the 'testing-avatar-url' page: