This option affects the arrow keys, if you press one with any of the modifier keys Shift, Ctrl or Alt held down.
Ctrl toggles app mode, the Ctrl key toggles between the default arrow-key sequences like ESC [A and ESC [B, and the sequences Digital's terminals generate in ‘application cursor keys’ mode, i.e. ESC O A and so on. Shift and Alt have no effect.
If you don't know what any of this means, you probably don't need to fiddle with it.