From Eclipse itself (context-sensitive help for the dialog), this suggests this, which is of little use.
"Activator is a Java class that controls the life cycle of a plug-in. This is only necessary if you need to do the work when you start or shut down your plugin. "
When this option is enabled, the Activator.java class is automatically generated for your new project.
So it seems that if (being a little newbie) you have no idea why or what extra work you should do when starting / stopping plugins, you can safely leave this OFF. Only one .java file is displayed in the source folder of the project.
Anon Support 2010
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