When this option is turned off the Spark taskbar button does not flash when there is activity in a conference room, which I think is its intended purpose. The problem I have noticed is that with this option enabled, if you receive activity in a conference and are correctly not notified of it, then if you receive activity in an individual chat before you open the spark window again you incorrectly fail to be notified of that activity as well.
What version do you use? I cant reproduce this with the latest SVN version. You can try this version from here: http://www.igniterealtime.org/community/docs/DOC-1822
I use 2.5.8, and am unable to test the SVN version in my current environment.