If you enable this check-box, you can enter a directory name into the text box. This name can contain an arbitrary amount of deeply nested variables.
That means, that all variables will be repeatedly evaluated, until none remain, two consecutive evaluations are identical or a preset (but high) number of evaluations were done.

The string generated in that way is then checked if it is an absolute path, or a relative path. If absolute, it is used as-is; if relative, it is expanded to rest below the normal "workspace" directory of the node.
The resulting path is then used as the workspace-root for this compound. This means, that if multiple compounds using this root are run at the same time, multiple parallel workspaces are spawned. Each will be amended with "@2", "@3", etc.

This functionality is highly useful, if you have multiple different compounds that reference the same source code repository and so do not need to have fully distinct workspaces.
In case this path evaluates to an empty string, or one only containing whitespaces, the default behaviour of Jenkins is used.