The Include Subfolders option allows you to decide if you want to export only the items in the selected mailbox or folder node, or if you want to include the sub-folders of that node.
If you selected to export the Inbox in Alice Alexander's mailbox from the image above, checking the Include Subfolders option would export all items in the Inbox as well as the sub-folders and their items. If you don't check the Include Subfolders option, only the items found in the Inbox will be exported.
NOTE: This option is only available when exporting from a mailbox or folder node. If you don't check this option when exporting from a mailbox node, only items in the Top of Information Store folder of the mailbox will be exported which will exclude folders like Inbox, Sent, etc.