Some old keyboards do not have an AltGr key, which can make it difficult to type some characters. PuTTY can be configured to treat the key combination Ctrl + Left Alt the same way as the AltGr key.
By default, this checkbox is checked, and the key combination Ctrl + Left Alt does something completely different. PuTTY's usual handling of the left Alt key is to prefix the Escape (Control-[) character to whatever character sequence the rest of the keypress would generate. For example, Alt-A generates Escape followed by a. So Alt-Ctrl-A would generate Escape, followed by Control-A.
If you uncheck this box, Ctrl-Alt will become a synonym for AltGr, so you can use it to type extra graphic characters if your keyboard has any.
(However, Ctrl-Alt will never act as a Compose key, regardless of the setting of ‘AltGr acts as Compose key’ described in section 4.4.8.)