Different platforms use different line termination characters. Such differences can cause two otherwise identical files to look like completely different files.
When enabled, DiffMerge treats all CR, LF, and CRLF characters as a generic end-of-line (EOL) marker and excludes them from the line. Line termination differences are not detected or indicated in any way. This lets you compare files from different platforms with different EOL conventions.
When enabled, EOL characters are grayed-out to indicate that they are being ignored:
When disabled, the original CR, LF, and CRLF characters are preserved and used in the analysis. The EOL characters are treated as part of the line. So 2 otherwise identical files with different EOL characters will appear to be 2 completely different files (with 1 change spanning the whole file).
When disabled, EOL characters are not grayed-out; they are part of the line and drawn just like other characters on the line.