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The setting Use length between hold-downs as Ls in 4th term of deflection equation allows you to specify that the value of Ls in the hold-down displacement term of the deflection equation in O86 11.7.1.2 is the length between hold-down device and compression force location, that is, the segment length minus the hold-down offset.
O86 11.7.1.2 defines Ls as the wall segment length, but using the overturning moment arm is a more accurate way of converting vertical hold-down displacement to rotational shear wall deflection due to overturning via the ratio of wall height h to Ls. Refer to the American Wood Council's Special Design Provisions for Wind and Seismic (SDPWS), Example C4.3.4-2, Figure C4.4.3.4B.