Not weird at all.
If you don't have enough video memory, you can't load all the textures. You likely get an "out of video memory" error. In that situation, you enable load textures on demand so that you can play, at the cost of a major performance hit when someone with a texture you don't have loaded comes into range. Your system then has to go to your slow hard drive and get those textures and load them up.
With it disabled, you load up all the textures on launch, so you don't get a performance hit during the game by loading up textures from your hard drive.
I heard this analogy once. If your processor went to order a hamburger from RAM, you would get that burger in about 1 minute. If you have to go to your hard drive to get the burger, it will take 9 months. Now PC time is much more compressed compared to what the human mind is capable of consciously noticing, but you can see that a gap that large will be noticed by even your relatively slow human brain.
