Verify apps over USB
This setting specifies whether your device should allow Google to inspect apps installed over USB for possible harmful behavior.
In order to install apps over USB you must also have USB debugging enabled and compatible software (such as the ADB tool supplied by Google to developers, though other software can also take advantage of this ability) on the connected computer.
App developers may want to have this service disabled in order to speed up the process of loading their app onto their device for testing. If you are installing apps that you did not develop yourself over USB, it is recommended that you enable this.
This setting has no effect on apps that are installed on the device itself, either from the Play store or from other sources.
The ability to let Google inspect apps as they are installed is a security feature, as the apps can be inspected for known harmful behavior. The app is checked against Google's massive list of known apps - including apps Google knows about that are not available in the Google Play store - to see if it matches any that are known to exhibit harmful behavior.
If an app is not detected as harmful by Google, it doesn't mean that it won't be harmful but just that it is unknown to Google. The service is most effective against common, known harmful apps and should reduce the spread of such apps.
Normally, this service is enabled for all apps that are installed on the device itself, either via the Play Store or from other sources. However, this setting allows you to control whether this service is also enabled for apps that are installed via USB while using the USB debugging feature, which allows developers to easily transfer apps to the device from a computer.
Note that this service is only available on Android 4.2 and later.