If this setting is enabled, users will be able to register for the site using the registration form. If it is disabled, the registration form will not be available, but users may be able to create an account through an authentication plugin which has auto-creation of accounts enabled. Make sure you remove such authentication plugins from your institution if you want to fully disable auto-creation for all new accounts.
If more than one institution has this setting enabled, the user will be able to choose which institution they wish to register for using a drop-down menu.
If no institutions have this setting enabled, then users will not be able to register using the registration form.
In general, if you have users set up to join this institution through a mechanism such as LDAP login or SSO from an external application, you should turn this setting off. You should also turn it off if you wish to control the creation of accounts using the Add user or Add users by CSV pages.