Yes, that just includes the installation disk as a repository. It is useful primarily when you don't have internet access or you just don't want to download stuff (a slow connection perhaps). Presumably, it just adds a line like
/cdrom/::"/media/cdrom" "Ubuntu Installation CD";
to /etc/apt/sources.list
. I'm not entirely sure about the format. This all used to be done manually but I haven't done it in years and couldn't find much about it. These days, the way to add a cdrom is by using apt-cdrom
which is, again presumably, what that GUI will run in the background.
It is currently unticked because having it there would give an error every time you run apt-get update
and the installation CD is not mounted. There is little point in having it unless you really need to use the CD instead of the public repositories. In general, assuming a decent internet connection, you should never use it since the versions in the repository will be updated and patched for security fixes while those on the CD will remain static for ever.