I see, in this case I believe the closed-loop stepper is the intended function of this feature. Specifically, section 20.3 titled "Closing the Loop" (page 108 of the pdf linked on the op), I added the text below for ease of reference.
Depending on the application, an encoder can be used for different purposes. Medical applications often require an additional and independent monitoring to detect hard or soft failure. Upon failure, the machine can be stopped and restarted manually. Use ENC_DEVIATION setting and interrupt to safely detect a step loss failure / mismatch between motor and encoder.
Less critical applications may use the encoder to detect failure, stop the motors upon step loss and restartautomatically. A different use of the encoder allows increased positioning precision by positioning directly to encoder positions. The application can modify target positions based on the deviation, or even regularly update the actual position with the encoder position.