If you select "Unsubscribe contact after last step" the Contact will be automatically unsubscribed when they have completed the last step. This is used in any sequence that a contact might repeat, such as a product fulfillment sequence, a "thank you" sequence for them meeting with you, etc. Unsubscribing after last step also keeps the stats clean and accurate.
In cases where you have a Sequence the contact should go through only once, such as a welcome sequence used for new clients, you will want to keep this option unchecked. If a contact is already subscribed to a sequence they cannot be re-subscribed; they will always remain on the step they are on. Leaving it unchecked means that no matter how many forms try to add the contact to the sequence they will only be subscribed to it once, and never repeat a step. This allows you to offer free ebooks, etc. as an inducement to sign up, yet prevent your current contacts from seeing the "welcome" sequence again.
Click here for an overview on Sequences.