What flattening does
Form fields and annotations sit on top of a PDF page as separate, editable layers. Flattening draws them into the page itself, so the answers on a form, a signature stamp or a reviewer's comments can't be changed or deleted, and look the same in every PDF reader and when printed.
Forms and annotations, or images
The first option keeps your pages as real PDF content, so text remains sharp at any zoom and can still be searched and copied. The second option turns each page into an image at the resolution you choose. That makes the file completely flat, with no hidden text or layers left behind, at the cost of a larger file and text that can't be selected.
Privacy
Your PDF is opened and flattened in your browser. Nothing is uploaded, and the file is gone when you close the page.