Yes, this toggles between using the Tooling API (checked) and the Metadata API (unchecked).
I've found several posts from Nick Chen (Salesforce) confirming this.
Are you deploying through the Tooling API or Metadata API. You can right-click on the Project and then select Force.com > Project Properties. In the dialog that pops-up, select Force.com > Deployment Options to toggle between the two. Source
Found in the source:
DeploymentOptions_UseToolingAPI=Use Tooling API deploy path when possible
Which leads to the UI:
preferToolingDeploymentCheckbox.setText(UIMessages.getString("DeploymentOptions_UseToolingAPI"));
It terms of actually changing how the deployment occurs. This happens in the BuilderController.
public void build(ComponentList saveComponentList, IProject project, IProgressMonitor monitor) throws Exception {
ForceProject forceProject =
ContainerDelegate.getInstance().getServiceLocator().getProjectService().getForceProject(project);
// If the user has opted for Tooling API and it's applicable, use the faster Tooling API route
if (forceProject.getPreferToolingDeployment() && isDeployableThroughToolingAPI(saveComponentList, forceProject)) {
buildThroughTooling(saveComponentList, project, forceProject, monitor);
} else { // Fallback to the Metadata API that supports all types
buildThroughMetadata(saveComponentList, project, forceProject, monitor);
}
}
The API version being deployed needs to meet the minimum version supported by the Tooling API and that all the components meet the requirements for isDeployableThroughContainerAsyncRequest(). The latter being that the tooling API supports all the components being deployed and that those components already exist in Salesforce. The tooling API won't be used to create new components.