here you can determine which of the objects refers to the other one.
For example if you set it to both objects refer to each other, then if you reference object B to A - A will also reference B. Country - region, france is in europe and europe has a reference to france as one of its countries. The other option works one way.
This setting is only available for many to many associations as you noted above.
This is the same setting as Owner: default (the top option) or Owner: both (the lower option)
Edit: if it's a reference set.