It means that you can't collide with ground clutter. Ground clutter being stuff like trees, rocks, bushes, sheep, etc. It basically works like it did in older versions of AH.
The reason it was changed to that was not because of the vehicle collisions, however. Allowing people to turn it of is a short-term remedy to an inherent problem with the system. I wouldn't worry about it though because AH2 will make it irrelevant.