This property affects Extraction. It is not used when creating zip archives.
With this property set to false, the default, extracting entries from a zip file will create files in the filesystem that have the full path associated to the entry within the zip file. With this property set to true, extracting entries from the zip file results in files with no path: the folders are "flattened."
An example: suppose the zip file contains entries /directory1/file1.txt and /directory2/file2.txt. With FlattenFoldersOnExtract set to false, the files created will be \directory1\file1.txt and \directory2\file2.txt. With the property set to true, the files created are file1.txt and file2.txt.