With that option checked WireTap Studio will make the recording at the settings you have chosen, but it will also save a copy of the recording in a completely lossless format. This original will have all of the quality of the original source audio no matter what settings WireTap Studio was set to record with. This option enables the real power of WireTap Studio's lossless editor. No matter what changes you make to that recording in the editor, the lossless original will always be available with all of the quality of the original source audio.
With this option unchecked, instead of working with and saving a lossless original, WireTap Studio will work with and save an original with the same quality and settings it was recorded with.