If you choose this option, then any optional tags you allowed people to set will be used to fulfill required matches on this field. Otherwise, matches on optional tags will only be used to increase the ranking of the match.
A challenge requires people to offer and request two fandoms, but also allows them to enter extra fandoms in the optional tags. The moderator promises assignments will match on at least one fandom (and therefore chooses "1" as the number of required fandoms to match).
If the moderator turns on "include optional tags" for fandoms, then both Bob and Sue will be potential matches for Jane. Otherwise, only Sue will match with Jane. In both cases, Sue will be ranked as a better match because she also matches Jane in her optional tags.