That setting only affects JFBConnect's registration page. If you have Automatic Registration enabled, then most users will skip our registration page entirely. Only users that don't have an email set in their social network or ones that are using a social network that doesn't provide an email addres (like Twitter) will see our registration page.
In those cases, with that setting, the field should be hidden and a username will be created for the user automatically.
I hope that helps,
Alex