Content is displayed on your monitor as a series of frames. These frames are usually talked about as FPS (Frames Per Second) as a performance metric for what a system is capable of in a given game. Monitors have their own refresh rates measured in Hertz, 60Hz is the old standard rate while modern gaming monitors are 120, 144hz or higher.
Frame tearing occurs when your GPU and display are not in sync. It does not matter that your GPU is providing more or less frames than that of your monitors refresh rate but when that number is not a multiple of your monitors refresh rate tearing occurs.
Here is a simulated example of what bad frame tearing can look like:
https://en.wikipedia.org/wiki/Screen_tearing#/media/File:Tearing_(simulated).jpg
Note that frame would exist on screen for a split second.
Games often include vsync as a software option to eliminate screen tearing. Unfortunately this creates latency noticed by users as input lag because there is a delay between your action or that of a competitor being taken and what is appearing on screen because it wants to keep things in sync more than it cares about providing the latest frame as quickly as possible. Some people are very sensitive to this and it can feel very jarring / sluggish and in competitive games you are at a disadvantage.
Wayland was designed to be frame perfect, so it is like having vsync on all the time. The option in Plasma's settings is to allow screen tearing in fullscreen applications only which is how most people run games. Without this option enabled users could not disable vsync in a game.
