If this is enabled, data files will have a new menu item in their context menus allowing you to make a data file a "default document" for a folder. If a folder has a data file which has been declared a default document, the folder will have a new item in its context menu which allows you to open that default document directly instead of the folder. This effectively turns the document into a folder view.
See the "&xwp; User Guide" for an introduction to this feature.
Changing this setting affects all folder and data file context menus immediately.