That will retain any Exch headers - essentially it ensures the messages sent within the connector are trusted - usually recommended and explains why if not checked, the messages end up in quarantine
Preserves internal headers in messages that are sent to the email add-on service, which means the messages are treated as trusted internal messages. If you select this value, you'll also need to use the same value on this setting for the inbound connector that you create in Step 4 (otherwise, the inbound connector will remove the internal Exchange headers from the returning messages).