Easiest way to explain it is it disables the letter shortcuts so typing goes to the chat log immediately without having to press your trigger key first.
Direct chat off: m by default opens the map
Direct chat on: m will immediately put an m in the chat log typing area

On a side i did find going into the keybind screen a bit lacking in options and versatility since the commands are bound to the actions instead of keys (i know why they did it that way but still). So I took the time to build ctrl and alt command keyboards out of the bottom hotbars and the vertical ones. To each their own on that one though.