You type a heading with pound signs, and a few lines later there are asterisks around a word and a dash in front of every item. Some people like seeing the markers; others would rather the note just look like the note. This setting is for them.
Turn it on
Open Settings → Display and switch on Formatted note editor, the last option on the page. It is off until you choose it, so nothing changes for anyone who doesn't.
What you see while writing
Typing pound signs and a space at the start of a line turns it into a heading at its real size. Bold is bold, a quote gets an indent bar, and a checklist item becomes a checkbox you can click to tick, instead of a dash and brackets.
Everything else works as before: the same formatting toolbar, the same shortcuts and the slash menu. The plain editor, with markers that fade back as you type, is still the default view. Toolbar and shortcuts are covered in note formatting.
Whose setting it is, and where it applies
It belongs to you, not to the practice. Each person on the team chooses their own, and it follows your account between devices. It applies wherever you write a long note while signed in: patient notes, session notes, protocols, long-text fields and the form questions you are building.
Patients filling out a form you sent always get the plain editor, whatever you have chosen, and a read-only field stays plain too.