Hello Mike,
This option is useful when site has few custom post types protected by the same (default) capability type (post): edit_posts, delete_posts, etc., but some users should have access to the subset of such post types only. When you turn this option ON, custom post type ‘video’ gets permissions: edit_videos, delete_videos instead. And you have to grant those new capabilities to a role or user in order provide access to this post type.
