4.16.4 ‘Return key sends Telnet New Line instead of ^M’

Unlike most other remote login protocols, the Telnet protocol has a special ‘new line’ code that is not the same as the usual line endings of Control-M or Control-J. By default, PuTTY sends the Telnet New Line code when you press Return, instead of sending Control-M as it does in most other protocols.

Most Unix-style Telnet servers don't mind whether they receive Telnet New Line or Control-M; some servers do expect New Line, and some servers prefer to see ^M. If you are seeing surprising behaviour when you press Return in a Telnet session, you might try turning this option off to see if it helps.