This option allows you to choose what font, in what size, the PuTTY terminal window uses to display the text in the session.
By default, you will be offered a choice from all the fixed-width fonts installed on the system, since VT100-style terminal handling expects a fixed-width font. If you tick the box marked ‘Allow selection of variable-pitch fonts’, however, PuTTY will offer variable-width fonts as well: if you select one of these, the font will be coerced into fixed-size character cells, which will probably not look very good (but can work OK with some fonts).