Yup, that setting is implemented in a somewhat naive way. The way it works is that I iterate through every pair of points on the cloth, check for when they get too close, and if they are, I introduce a spring to push them apart. So effectively this introduces a short-range repulsive force between pieces of the cloth.

Avoiding self intersections results in more realistic cloth behavior like folds and wrinkles. The problem is, iterating through all pairs of points comes at a computational cost, and can really drop the frame-rate, particularly for large cloths. So I decided to keep this setting off by default until I have a smarter way to implement this (e.g. using quadtrees).