This option controls the way the main shop page is displayed. Since the filters are usually set to work on the main shop page, they need this page to be set to the products display mode in order to function properly.
There is a Woocommerce setting that allows product categories to be displayed on the shop pages, or subcategories to be displayed on the category pages (you will find it in the Appearence > Customize > WooCommerce > Product Catalog section in Shop page display and Category display options). Whenever this options are enabled, they break the proper filtering of the main shop page products, for which reason the annasta Woocommerce Product Filters plugin disables them by default.
If you do not wish the filters to work on the shop page (in cases when one uses them only on the [products] shortcode pages), and want your shop to display product categories on the front page, and/or subcategories on the category pages, you can uncheck this option.