As you might know, after a while of working with OS/2 and the WPS, the OS2.INI and OS2SYS.INI files can grow really large. This is mainly due to the fact that the WPS keeps adding data to them, which does make sense in general. However, the WPS fails to remove much of this data again when it is no longer needed.
This is where a number of helpful utilities come in, most importantly the amazing WPTOOLS package by Henk Kelder. However, these utilities can only do cleanup when they are started and require quite some thought on which data is important and which is not.
Since XFolder is part of the WPS, it can determine itself when data is still
important and when it is not. So you should keep this setting enabled to do some
clean-up automatically. It is still recommended however to run external utilities
from time to time, since XFolder cannot do all the work yet.