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A Design setting allows you to use the capacity of the shear wall as the design force for hold-down calculations, rather than the actual shear force in the wall.
SDPWS 4.3.6.1.2 and 4.3.6.4.1 mandate use of applied load (induced shear).
The "shear wall capacity" option is included because some seismic designers believe that the lateral-force resisting system should be designed on a capacity basis requiring the ultimate capacity of the hold-down to equal or exceed the ultimate capacity of the shear wall rather than the induced shear. Also, the ASCE 7 requires that hold-down connections to load bearing members such as sill beams be based on shear wall capacity,
Note that for perforated walls, the shear wall capacity used is not reduced by the opening coefficient Co. Perforated shear wall theory assumes that the wall segments at the start and end of the shear wall can reach their full (Co = 1) capacity.
Note that the forces used to calculate hold-down deflections are always based on applied force rather than shear wall capacity, regardless of this setting.