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This option is explained.
You will find the following option in System->Configuration->User Authentication.
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If all of your users are using the CensorNet in its "Sideways Proxy" mode then this setting will not have much effect. However, if you have configured your CensorNet to provide In-Line mode, and then some users are using it in that fashion (without authentication) but others are using the CensorNet in traditional "Sideways" mode (thus "Mixed Mode") then its setting is essential.
It means that the CensorNet will permit the In-Line users to go through the proxy without authentication. In particular, if the workstation using In-Line mode is registered and there is a policy configured for its group, the CensorNet will use that policy, otherwise the default policy will be used.
Clearly unticking this box in such a situation would deny service to the In-Line workstations which is why it is ticked on by default.