That dialog allows you to choose which final format you want for the conversion. When that happens to me, I use the “better” quality which implies a “large” file size
With this, Shotcut will create a video file in an intermediate DNxHR/ALAC format with a .mov extension and use it for the whole editing process.
Additionally, if you have a preview and proxy scaling enabled, Shotcut will automatically create another lower resolution file to be used only in the preview, which will facilitate smoother editing.
You can learn more about this by doing a Proxy editing and Preview Scaling search.