The Late Observer setting allows users to join a game as observer after it started.
Spectating games is highly interesting, because one can follow the course of actions of selected players,
compare how different strategies and tactics work out, helping to understanding the game mechanics,
makes matches and the players in it more popular and thus 0 A.D. as a whole benefits too.
Besides having a useful feature enabled by default, it also makes it more consistent, because
currently 32 observers can join a game after 8 players joined (independent of the late observer flag)
(as we can't know in advance which clients will become assigned players).
The downsides to this features are players who are not wanted (either due to their personality or due to lag) joining games.
This however is countered by the /kick, /ban, /kickspecs and /banspecs commands. A network dialog to have buttons for this is planned as well.
Some hosts really want this feature to be disabled (as they might not host and moderate as an observer but also play while hosting).
They can still disable the option as usual in the settings.