This option allows you to change system types if the system had multiple configurations. For example, Space Invaders was available in upright and cocktail modes. This option allows you to switch between the different modes.
Space Invaders Cocktail
As you can see, if you switch Space Invaders to cocktail mode, when player 2 starts the screen in flipped as they would have been sat at the other end of the table.
For other systems, this menu may change hardware or have updated rom information. On the ZX Spectrum for instance, it changes between an issue 2 and issue 3 variant. On the Amiga 500 it lets you change the mouse and joystick options as they are not slot devices. You will need to check for each system that you use.
ZX Spectrum Versions
One thing to note is that if you change anything on this menu then you need to use the "Reset" option at the bottom of the menu to enable the changes.