I haven't looked at it, but my first guess would be for computers over the internet and/or LAN. I think two computers connected together would be considered a LAN. I assume it asks for an IP address when you select "Direct Connection"? It it does, the computers could be anywhere in the world, on a LAN or the internet. Since you have to know the IP address, this would be used between friends playing. The game would not be seen through the standard server lists, thus only people who know about it could join. But thats just a guess. See what the manual says.
(I may not agree with thoughts posted under this name)
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