That actually makes sense for things you want to finish drying on a line so they don’t heat up too much and shrink.

Mine has similar settings but they're named in ways which actually tells you why you'd want them that way: "Ready to Iron", "Ready to Hang" and "Extra Dry", things like that.

So it actually adds water?

Tell me you didn’t read the manual without telling me you didn’t read the manual.

(I didn’t read mine too, btw)

It's useful for when I forget about my laundry and the clothes are already mostly dry, but not completely.

Some fabrics wrinkle when you allow them to sit in the dryer totally dry. For those you want to take them out and hang them for the last bit so when they reach their driest state they’re hanging and not crumpled within the dryer.

source: am appliance salesman