If the Differential option is selected here, only those files that have changed or were created since the last full backup will be included. This is most useful when you have two scheduled backups, such as a weekly full backup and a daily differential. Assuming that most files in a domain are un-changed day to day, this will substantially reduce the size and time of daily backups.
Be aware that when restoring, you will need to restore first the full backup and then the differential to recover all files. Also, other data such as Apache configurations and databases is not differentially backed up, and so will always be included regardless of this option.
The Neither option also performs a full backup, but does not change the backup state. This can be useful when performing an ad-hoc backup of domains that also have full and differential backups scheduled.