Is it my interpretation or is the sense of the flag inverted
This preference refers to the background color of your drawing area and the color of your entity.
If the option is enabled (ticked), white entities will be drawn in black if the background color of your drawing area is set to white or very bright. Black entities are drawn in white if the background is black or dark.
If the option is disabled (unticked), all entities are always drawn in the color they are in, allowing you to draw 'invisible' entities (black on black, white on white).
The option exists to allow users with different background color settings to share drawings without having to modify the drawings. Some users prefer to draw on white backgrounds, some on black backgrounds.