The purpose of Unrestricted is to destroy old content at a higher level without necessarily having a full party. The purpose of Level Sync is mostly for blue mages. The purpose of Minimum IL is for people who want to re-experience the challenge of the content as it was before people got better gear and made it boring.

Quote Originally Posted by Newt456 View Post
Essentially, I've only been using the duty finder to play restricted dungeons (aka the default settings) for MSQ and optional dungeons. I'm at the point where I'm interested in playing with the settings and entering unrestricted dungeons with 2 other peeps
The reason to do this is if you don't want a full party and, usually, to destroy the content as a higher level so you don't need to do mechanics. This is useful for farming something efficiently but depending on your perspective might feel too easy.

That said, I'm a little confused about how level sync/ilevel sync works.
Level sync, as it implies, syncs your level, but it also syncs your item level to the item level associated with that level, usually the maximum item level of the expansion.

Level 1-49 would sync to 1-49. Level 50-53 syncs to 130. Level 60-63 syncs to 270. Level 70-73 syncs to 400. Level 80-83 syncs to 530.

Item level sync (Minimum IL) on the other hand, syncs to the "avg. item level", which is the item level the content was designed for. It is the item level that raid-wide damage is scaled for, so an average raid-wide or tank buster will get people to double-digit health without food (because food from expansions doesn't fully sync), especially in raid content. This setting also syncs level even though it doesn't mention it.

It has to sync level because when you level up, your stats get weaker, so that item level would make your attacks weaker at a higher level. The only thing that makes up for it is the higher potency ability upgrades at higher levels. Gear/item level is meant to increase with level and that's why in these settings, both level and item level are synced together, even if it doesn't say that they are.

In what scenarios would you want to keep level sync off but ilevel sync on?
If you have item level sync on, then level sync is irrelevant and has no effect, because item level sync also syncs your level.

And in what scenarios would you want to have both off?
When you want to destroy old content in seconds as a level 90 and don't care about the challenge.

There's text within the settings that says defeating enemies yields no EXP or items, so I assume that's handled differently than static loot from the dungeon?
It means direct drops from enemies. Direct drops from enemies mostly refers to experience because items usually come from coffers.