The software can determine a bounding box around the brain based on an FSL masking procedure. This is a step intended to optimize the mutual information algorithm, by reducing the amount of non-brain space in the image. This not only speeds up the processing, but can also improve the results of the mutual information based registration algorithm.
However, in a few small cases, such as when there is significant head motion during image acquisition, this can result in an image space which is too restrictive for the images.
In most cases, the default option of "on" is recommended.