This name is a bit misleading. After disabling it, I was able to increase a varchar field length and even restore the identity fields without loss of data.
Actually, the name is completely accurate: those kind of changes to tables ARE implemented in SSMS by dropping and recreating the table (just not in that order) in such a way that the data is preserved. If you want to see proof of that or how it is done, just click the "Script" button before you save your changes to the table.
As for why this option is there: It is not because you could lose your data, rather it is because on large tables the Copy step (that preserves your data) can be extremely slow and lock up your DB or Server for a long time (I have seen it take many hours).