That setting will add some tracking information to Google Analtyics about which pages the Like button is clicked on. With that, you can do some analysis as to where a user enters your site and when they eventually click the Like button, and other things like that.
It's certainly not necessary to enable that setting, but it's there for your analytics needs if you want it.
I hope that helps answer your question,
Alex
Add Google Analytics Tracking for New Likes - info
