In short: When you set spending behavior, you are indicating how aggressive or cautious you wish to be in the face of the random historical returns you expect year over year. In the Monte Carlo simulations, the return rate used to determine your earnings on regular and retirement assets is determined by the historical performance of your asset classes. However, even though you might expect a 6% return on average based on the historical performance of your asset classes, you may wish to approach each year cautiously and spend as if you will only earn 1% as a way to hedge your bet (not count your historical-return chickens) and thus establish cautious spending behavior (set a lower than expected return assumption) in the face of of these uncertain, random returns. If it turns out you do get the 6% historical average that year, the surplus you have that year (remember, you spent cautiously as if you will be earning only getting 1% that year) will be pushed forward and included in next year's calculation and, all things being equal, your new annual spending level for the future will be higher than the year before. You will not necessarily forever forego the advantage of this historical return expectation. You will, in this 1% example, simply be cautious in setting your spending level so as to take that upside incrementally, one year at at time, only as it comes instead of assuming the historical average will show up each and every year perfectly on schedule.
In more detail: In the deterministic plan (i.e., base plan; non-Monte Carlo plan), your rate of return assumptions for regular assets and retirement assets are established with the same setting for spending behavior. You set them both with the same setting and spending behavior and rate of return effectively mean the same thing. This is one of the reasons that with the non-Monte Carlo deterministic plan, a plan that represents itself as precisely meeting all expectations in the future, that you should use cautious return assumptions, not historical averages. A deterministic plan assumes you will get for certain the return that you stipulate each year. A deterministic plan (your base plan in non-Monte Carlo mode) is designed to be a safety first, for sure plan. Because of this design assumption, for the plan to be useful you should enter a rate of return/spending behavior that lives up to this "reasonably certain" billing.
But in the Monte Carlo mode, the rate of return is introduced by the historical risk/return profile of your asset classes. So unlike in the non-Monte Carlo deterministic mode, you don't get to choose your rate of return. It is determined by your asset classes. However, you can still indicate a rate of return that sets your spending level. This rate of return is referred to your spending behavior assumption. Setting spending behavior allows you to represent how you spend--cautiously or aggressively for example.
For example, based on your asset classes you may expect a return over time and on average of 6%, but you also realize this historical average will not prevail exactly every year, for sure, and thus you may want to hedge your bet and spend "as if" you will be earning just 1%. In other words, you set a cautious spending behavior so as to not count your historical-based return chickens before they are hatched. Of course if you do capture the historical return of 6% in a given year, you will have effectively under spent what you could have in that year, but those unspent upside earnings on your assets will now be added to and improve next year's model and a new, higher, spending level will be established for next year's plan. If this pattern of cautious spending behavior coupled with expected or better than expected historical returns continues, your annual living standard will rise year over year and your lifetime spending charts will tip upward through time from left to right. On the other hand, if you set spending behavior too aggressively, even though your 6% expectation eventually comes to pass over the life of your plan, but only after years of a bad sequence of returns, then you could get out over your skis and see the charts tipping downward as your aggressive spending effectively outpaces or over spends your actual returns.
A good rule of thumb is that if you invest aggressively and expect higher historical but more risky returns, you should set spending behavior to be cautious; if you invest conservatively and expect lower, safer, historical returns, you can spend more aggressively.