A custom action can contain a number of actions, and in many cases even a mix of actions which are toggles (have off/on states) and that are not toggles. This option decides when will this custom action show its toggle state when assigned to a toolbar - if all actions are enabled only (which means if you have a mix of toggles and non-toggle actions, it won't show anything), or if action(s) are enabled OR indeterminate, which in case of mixed actions will show the toggle state of the toggle action that's in the custom action.
Sounds a bit complicated I suppose, but that's my understanding.
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