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Normally (when this setting is off, the default), double quotes around a group of search terms just makes the group a phrase: the terms must be found in the same order and adjacency as in the query. However, thesaurus lookups, word form processing (e.g. plurals), etc. are still performed on the phrase.
If Quotes for Literal is on, double-quoted terms will not only be phrases, but also searched for as is, without thesaurus lookups, word form processing, or other characters that would otherwise have a special query meaning.