With this option selected, DropDMG will ask you to enter the name of the image file it will create and the name of the volume that will appear on the desktop when you mount the image. DropDMG will automatically add the proper filename extension (.dmg, .img, or .smi) to the image name. It may also truncate the names you enter if they would be too long for the Mac’s volume and filename limits.
With this option deselected, DropDMG will assign the image and volume names based on the name of the folder being imaged.