When using the Scan - Honor Day of Week setting then the Schedule will always operate on the days defined regardless of any holidays that might be active. It can be thought of as a setting that overrides holidays.
Say, for example, that you want a time schedule to always be active Mon-Fri regardless of any holidays that have been defined, but you don't want the schedule to be active on other days of the week (even if they are on holidays), this mode will accomplish that.
Note: