It is a old setting....used to lower visual effects to gain 1-2 fps. Unless you have a very, very weak graphics card you want to untick it.
FP16 Render Observations
In addition to the above recent findings, for months AMD had been performing a background optimization for certain DX9 applications where FP16 render targets are demoted to R11G11B10 render targets, which are half the size and less accurate. When recently exposed publically, AMD finally provided a user visible control panel setting to enable/disable, but the demotion is enabled by default. Reviewers and users testing DX9 applications such as Need for Speed Shift or Dawn of War 2, should uncheck the “Enable Surface Format Optimization” checkbox in the Catalyst AI settings area of the AMD control panel to turn off FP16 demotion when conducting comparative performance testing.