This feature controls what happens to the PuTTY window's entry in the Windows Taskbar if a bell occurs while the window does not have the input focus.
In the default state (‘Disabled’) nothing unusual happens.
If you select ‘Steady’, then when a bell occurs and the window is not in focus, the window's Taskbar entry and its title bar will change colour to let you know that PuTTY session is asking for your attention. The change of colour will persist until you select the window, so you can leave several PuTTY windows minimised in your terminal, go away from your keyboard, and be sure not to have missed any important beeps when you get back.
‘Flashing’ is even more eye-catching: the Taskbar entry will continuously flash on and off until you select the window.