There is an option when you add a drop shadow using a Layer Style that is called Layer Knocks Out Drop Shadow. What does it do?

In the previous blog post we have learned what Fill Opacity is and what it can be used for.
In the attached example I have two blue circles with a drop shadow added by using a layer style.
Both layers have a fill opacity of 50%. The drop shadow effect has an option at the bottom called Layer Knocks Out Drop Shadow and is selected by default. What it does is hiding the drop shadow effect, even after we reduce the fill opacity of the circular shape to make it more transparent. Deselecting this option allows us to see the complete drop shadow.

Layer Knocks Out Drop Shadow