Per default mbed compile prints errors/warnings on output not in a link format, therefore it is not possible to click, i.e. in an IDE, on the errors/warnings and jump to the position in the file.
The settings parameter lets you decide in witch format do you want to have it.
If it is enabled then the output will look like:
[Error/Warning] [absolute\path\to\file.ext]:[line]:[column]: [msg]
with this format nearly every common known IDE can deal with this link and lets you jump to the file