That is a convenience setting. Say you plug in an external USB drive full of MP3s but you prefer to have everything in Apple format. That setting will convert the file format to M4A format and copy it to your local iTunes drive. (It will leave the files on the temporary drive unaltered.)
The catch is the software isn't smart enough to see if your file is already in that format and in your local iTunes folder. As such it will repeat the process needlessly if you ask it to.
The catch is the software isn't smart enough to see if your file is already in that format and in your local iTunes folder. As such it will repeat the process needlessly if you ask it to.