The XEP-0423 defines a set of recommended XEPs to implement for a server. It's generally a good idea to implement this set of extensions if you want to provide your users with a good XMPP experience.
This NixOS module aims to provide a "advanced server" experience as per defined in the XEP-0423[1] specification.
Setting this option to true will prevent you from building a NixOS configuration which won't comply with this standard. You can explicitly decide to ignore this standard if you know what you are doing by setting this option to false.
[1] https://xmpp.org/extensions/xep-0423.html.