Actually this parameter influences the GUI behavior. If a single existing file in a directory has been deselected using the DP GUI, then the directory still exists in the backup definition…only the deselected file is entered in the exclude list.
Without this parameter, once you deselect the file. the GUI automatically deselects also the directory.
It is not a parameter for excluding a (certain) file from a backup...the parameter influences the GUI usability as described above.