When you check either of these boxes in BiblioCommons or the Classic Catalog and perform a search, the catalog will only display items that are actually in a library and on the shelf or waiting to be shelved.
In BiblioCommons you can limit the search to one, multiple or all library branches. In the Classic Catalog you must also limit to a specific location. Please note that doing both at the same time may limit the results that you will see.