In IMS data, the <sourcedid> field represents the persistent ID code for a person as used in the source system. The <userid> field is a separate field which should contain the ID code used by the user when logging in.
In many cases these two codes may be the same - but not always.
Some student information systems fail to output the <userid> field. If this is the case, you should activate this setting to allow for using the <sourcedid> as the Moodle user ID.
Otherwise, leave this setting turned off.