Itunes - Keep Files Organized?

Can someone tell me if selecting this feature and "copy to Itunes folder" is just a backup of the files you are adding to Itunes? If not, what is the benefit of these two functions?
iTunes has a music folder where it puts anything that you rip. The defualt location on a Mac is USERNAME - Music - iTunes - iTunes Music but you can change to any folder you like on any attached drive. Changing the location does not move or copy any files to the new location. It only tells iTunes where you want to put anything that you rip from that point forward. On a PC it is a similar structure in your documents folder.

If you select "keep files organized" it puts them in that folder with a sub folder structure of Artist - Album - 01 firstsong, 02 secondsong, etc by adding the number to the song file. If you don't select it, when you look at iTunes they will still be organized by album - artist - song but if you look at the music folder it will not have sub folders but just one big folder with all of the song files.

You can add songs to iTunes by either ripping or importing from another drive. Say you ripped songs to an external drive on a different computer and then import those songs to iTunes. If you do not select "copy to iTunes folder"it will add the songs to the iTunes library but will play them from the external drive. Nothing is copied or moved. If you do select "copy to Itunes folder" then it will also copy all of those files to whatever folder you have presently designated as the iTunes music folder. You would then have a copy of the files on the external drive plus another copy in the music folder so yes, you would have a backup. You can disconnect the external drive because iTunes will now play the files from the iTunes folder. That's fine unless you're adding more files than the current drive can hold.

The thing to remember is changing either of those options only affects what happens to songs you add in the future. Any files added before you changed the option will remain as they were.