What is target filtering/cycling?

[Estellios]

Well, I changed TAB to A, but it still cycles only through enemy NPCs and nothing else, so I don't see the need to filter out other NPCs, PCs, etc. They aren't even a part of what the key does in the first place. It's set to "target nearest enemy," so why would you need a filter for that?

I just checked the keybinds and you are correct, TAB or whatever you set it to, the function is specifically only for enemies.

So this setting is specifically for Gamepad users, who by default have left and right cycle through all targets when out of battle and Enemies/NPCs when in battle.