QUESTIONWhat does the "Allow Workflow Schedules to Impersonate the System Account" setting do?
ANSWERThe last account that modified a schedule is the account that is used to run the schedule and will be used as the initiator of the workflow. However if the schedule was created by, or was last modified by, someone logged in as the System Account the workflow will fail to run. This is because Microsoft specifically prevents workflows from starting automatically with the System Account, as of SharePoint 2007 SP1.
To work around this, Nintex workflows have a setting called "Allow workflow schedules to impersonate the system account". This allows workflow schedules to run using the System Account.