What does the "Allow Workflow Schedules to Impersonate the System Account" setting actually do? When should it be used?
All SharePoint On-Premise
The last account that modified a schedule 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 would 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 we added a setting called "Allow workflow schedules to impersonate the system account". This allows workflow schedules to run using the System Account.