The documentation on this is kind of confusing. I researched this myself a while ago for another customer, and I have it on my todo list to write something to submit for the documentation.
Important to know is that the setting does not act as firewall or anything like that. What you are configuring is which network interface to listen too. Every computer always has at least 2 network interfaces, localhost & the public network interface.
Those settings will change if the application listen to the localhost network interface, or all interface.
When you have multiple network interfaces you can use this setting to manage from which network interface communication is allowed. This allows you to configure that you allow localhost traffic, and only traffic from 1 of the 2 other interfaces. This way, when your server has multiple network interfaces you can configure through which interface data is accepted.
For example on my laptop I have 4 network interfaces: localhost, my ethernet card, WiFi and vpn. I could chose to configure the following option: 127.0.0.1, 10.140.20.0
This allows only traffic from the localhost interface and the 10.140.20.x subnet. But all traffic from that interface is allowed, I cannot limit that further to the actual ip range.
If you want to put that limitation in place you should still use your firewall or network proxy rules (IIS)