I'm not completely sure what is the question... this option (for a particular scan) specifies whether even PUP detections should be reported (in the same way as ordinary malware), or whether these detections should be disabled and the corresponding PUP files reported as clean (provided they don't contain other, more serious infection, of course).
As for what PUPs are - various commercial keyloggers, remote administration tools, FTP servers, hacking tools, possibly IRC clients... i.e. tools that some users may knowingly have on their computers, while for others it's a sign of malware infection (because some malware comes bundled with these tools, and misuses them to connect to botnets, to steal user's private data, etc.)