This site attempts to make puzzles as small as possible, and gives points for as much overlap as possible. In addition, all puzzles have the same number of columns as rows.
The puzzle must obviously be at least as large as the longest word, or else that word would not fit. So that is the starting size. As the site attempts to build the puzzle, if we cannot get all of the words in the grid, we grow the puzzle by one, and do it all again, repeating until we get a puzzle.
This option allows you to select a different starting size. Obviously, if it is smaller than the longest word, it will have no affect. However, setting this larger creates a puzzle with fewer overlaps and more "unused" space. Some people like this so that the solution is less messy, and is easier for young people.