1 - editable Layer Style vs 2 - merge Layer Style into Footage
Photoshop provides a variety of layer styles—such as shadows, glows, and bevels—that change the appearance of a layer. After Effects can preserve these layer styles when importing Photoshop layers. You can also apply layer styles in After Effects and animate their properties.
The first option is when you still want to make adjustments to the layer — depending on the layer styles of course, but you may want that flexibility.
The second option flattens the image so that it is just like importing a flat bitmap image.
Most often I choose the fist option of retaining layer styles and then pre-compose the image if I want to treat it as though it were flat. That's the best thing to do if a photoshop file has layers that you want to edit or animate.
So example if in :
option 1 you've masked out your illustrations using the pen tool, the mask shapes will appear in AE .
Option 2 will import the cut out shape without the mask outlines, thus a flat image.