The "Country/State/City/Location -> Keywords" button allows you to enter locations in the four IPTC fields and then copy them to keywords.
The advantage of manually entering the 4 IPTC fields is that they can be easily used in the Library Filter columns and as criteria in smart collections.
The resulting keywords are grouped under the non-exporting "~IPTC locations" (which you can change in Plugin Manager) so you can see that these keywords were generated by the plugin.
You can choose to apply only the "leaf" location keyword, or to keyword all levels.
Apply all Levels means that the country, state, city and location fields will all become keywords. This may be preferable if you like saving to xmp as a secondary backup.
Default: only the lowest level keyword will be added, but LR will export the four levels anyway, so the end result is the same.