When this box is unchecked, your main categories will only display the products that are directly assigned to them from your product settings.
To remove the "No products listed" text please see the knowledge base article found here http://support.ashop.com.au/KB/a583/hide-there-are-no-products-to-display-in-an-empty-category.aspx
Important: If you have the "filter box" widget activated, it will only be useful when you have a lot of products under a category. So if removing them from the main category means you don't display many products, then you may also want to remove that filter widget.
OR..
You can also disable the subcategories from displaying above the products via your themes editor. Edit your online theme and it's a setting on the left menu
