Knowing that this very topic would come up, I sent a note to the Obihai folks last night, asking that they post a "horse's mouth" FAQ to explain what checking this option does to the device configuration. Referencing the other end of the horse, all we can do is assume (guess) that it ensures the device is using only the G.711 CODEC, and perhaps adjusts some DTMF values to be as compatible as possible with the old alarm system protocol.
If you're curious, the standard ADEMCO alarm protocol uses DTMF tones, not a modem-like modulation scheme as used by fax machines or dial-up modems. Here's a link to a document on the standard:
http://www.hkvstar.com/technology-news/sia-standard-ademco-contact-id-alarm-communication-protocol.htmlAnd, of course, nobody should try to use this feature with a 1032 phone, as it has no analog phone port output.
Extra information for those interested in doing this: The typical (properly wired, for USA use) security system panel that was designed to be used with a POTS line, would have this configuration:
POTS line demarcation block<--->RJ-31X exclusion jack<-->alarm's telco plug
|<-->premises phones
Properly wired, the RJ-31X jack has spring-loaded pins that connect the POTS line to the premises phones if the alarm's plug isn't inserted in the jack, and, if it is inserted, the alarm electrically loops the connection back to the RJ-31X through a relay, and then to the premises phone. When the alarm is tripped, the relay "seizes" the POTS line by disconnecting the premises phones and connecting only the alarm panel's phone plug. So, properly replacing a POTS line with an OBi-provided connection requires that the RJ-31X's POTS wires be disconnected, and instead, the OBi ATA's phone jack be wired to the POTS side of the RJ-31X jack.
Disclaimer: I am neither recommending, nor discouraging the use of this feature; YMMV and you need to decide which communications method meets your own needs and risk level. I have been using my 202, wired this way, with Callcentric, and with my ADT/Ademco Vista panel for a few months, and it works fine, but this will vary by the alarm monitoring service used, your ITSP's connection quality and the OBi's settings.