This option can be used to mark an item as returned without actually returning it to availability.
Such an action can be useful when items are lost on a job or are simply not coming back for some other reason. Note that the System Administrator permission must be granted for this option to appear.
Ultimately, this means that the items "appear" returned on the Return Screen and are removed from the Unreturned Items Report. However, if any serialized units were previously marked as Presumed Missing, that setting will remain and they will continue to appear on the Presumed Missing Report.
There's a brief overview of this function here: