If the Avoid Printed Parts setting is enabled, the nozzle will avoid other parts when travelling from one place to another. Normally, if a Z hop is applied, avoiding printed parts is not necessary any more. This setting switches that logic around: If avoiding printed parts is not possible, a Z hop is applied.
Z hops can be problematic for the wear of the Z axis of some printers. This setting can reduce the amount of Z hops by going around an object horizontally instead of vertically. For some printers, moving horizontally can also be faster than moving vertically, and thus save time.