This feature enables you to break-out the individual line items that were combined into a (non e-commerce) charge. For example, if someone signed up through your application flow, the approval process + auto-charge would combine the items into a single charge. By checking this option Break-out line items into transactions, you will see each line as a transaction.
As you can see in this example, without the box checked, you'll see 2 transactions associated with the membership.
When you check the box to break-out the line items, you'll see 4 transactions where each line item is it's own line.