To answer your question - it depends on what you are doing and when. Basically, when you start an upgrade, Jira will export your current data to xml in the old format, as a backup, then it starts changing the shape of the data into the new shape. If the upgrade fails, you can use the xml to go back to a working system.
However, large Jiras don't tend to be backed up with XML, we mostly use database backups. So we don't need the xml, and we actually don't want it either - you don't want your server spending hours creating an xml backup you're never going to need.
So, on a Jira with a database backup, we set the flag before starting the Tomcat to do the upgrade. After that, it does precisely nothing. The flag only matters when starting an upgrade.
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