When the "Unicode enabled" option is enabled, UTF8 and UTF16 data fetched from the server will be displayed as such. When it is disabled, UTF8 and UTF16 data will be converted to/from the character set as defined by the NLS_LANG setting on the client.
The "Check for server & client character set mismatch" will cause a warning when you are connecting from a non-Unicode client to a Unicode database. Unicode characters used directly in SQL or PL/SQL cannot be converted in that case.