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This is for authorizing an app to be a file manager. It's not a normal way for apps to access files/directories outside their app sandbox. It also isn't something they can directly request via a dialog. They can send you to the Settings app after telling you to enable it though.
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Support for the legacy file access system has been dropped from apps targeting the current API level. This is a remaining system for authorizing an app to be a full blown file manager. They could remove it, but many people would be quite unhappy about that happening so it hasn't.
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People have been far more vocal against these improvements than they have been in support of them. If they removed support for alternative file managers, which is being abused by that app, especially if it refuses to work without it, a lot of people would be even more unhappy.
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