That option forces all traffic from your phone while the VPN is active and connected to traverse the VPN connection when it is set to "yes".
Think of it this way:
Let us say your home network private IP range is 192.168.1.x and your cameras are on 192.168.1.10. This doesn't need to be correct it is just an example.
Let us say you are at a Starbucks using their WiFi.
You connect the VPN successfully and are able to access your cameras at home.
You also open up a web browser on your phone with 2 tabs open. The first tab is to
American Honda Motor Co., Inc. - Official Site and the second tab is to
Here is the effect that turning that option between "yes" and "no" has on the above scenario:
When set to "yes":
Your connection to your cameras at 192.168.1.10 is encrypted by virtue of traversing the VPN to your home.
Your connection to
American Honda Motor Co., Inc. - Official Site is encrypted by virtue of it being httpS and not http. Additionally the traffic is encrypted an additional time since this traffic traverses from your phone, across the VPN to your house, then to
American Honda Motor Co., Inc. - Official Site
Your connection to
is partially encrypted. It is encrypted from your phone to your house by virtue of traversing the VPN but it is then unencrypted from your house to
.
When set to "no":
Your connection to your cameras at 192.168.1.10 is encrypted by virtue of traversing the VPN to your home.
Your connection to
American Honda Motor Co., Inc. - Official Site is encrypted by virtue of it being httpS and not http. The traffic goes from your phone directly to
American Honda Motor Co., Inc. - Official Site
Your connection to
is not encrypted in any way.
What does all this mean ?
Frankly not very much. The internet as a whole is moving towards all websites being encrypted (e.g. they have the httpS) which means that any communication between your device (e.g. computer, smart phone, etc) and the website is encrypted. Google search results rank encrypted websites higher than unencrypted websites for example. The times to worry about unencrypted data is if there are passwords involved. If you visit a website that requires a password but it is http only then that password is passed in clear text, this means if someone were to intercept your traffic they could read your password. The only websites that don't have encryption while requiring passwords are without a doubt terribly run sites and I wouldn't trust that site with any of my personal info.
Another way that unencrypted data can catch people off guard is with their email. If your email provider is a modern web provider such as gmail.com or outlook.com you are encrypted when checking your email, even if you use an email client to check your mail such as Outlook or Apple Mail app on an iPhone. If your email provider is an outdated system that uses POP3 or IMAP then you have to manually configure the encryption and it may or may not even be possible to do with a modern device like an iPhone.
There are deeper aspects to the VPN usage and encryption in general but they can get very complicated. If you like I can go into greater depth on the topic.