I think it would be more intuitive if this was only an option when 'Set group, owner and permissions recursively' is checked (otherwise, it's just for the directory).
Also, it should cycle (as many other programs do):
unchecked->checked->do not change
This will mean when users see it unchecked and want to check it, they click once--seeing it 'checked' will not be counter-intuitive. If they see it checked, then clicking it once and still seeing something in the box, they'll click it again to uncheck it.
As an aside. Are you still looking for documentation? We do not have anywhere close to all features documented (nor will we), but if the link is useful, then ours is at:
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Thanks for the quick update on the 3.7.3 bug!