Flatten Composite Glyphs option allows to correctly process rare TrueType and OpenType fonts made from piled-up blocks instead of common contours.
Left: glyphs made from piled-up blocks. Right: glyphs flattened to contours.
Fonts made from blocks are relativelly rare. However, if you want to convert such a font into embroidery, flattening is necessarry.
Note : do not use flattening on common fonts, it will eliminate holes in glyphs.