First off, thank you Cloudberry Labs for creating this product and for providing it for free!
I've installed version 1.6.2.38 on my home computer and a work computer for testing. Both are Windows 7 Pro 64 bit. I've got the work computer setup to control the home computer and the home computer setup to be controlled. I've setup unattended access and encryption on the home computer. I had initially checked the prompt for incoming connection box and got a popup on the home computer asking if it was ok for the work computer to connect when I started the connection so that worked fine. Then I unchecked the prompt for incoming connection box on the home computer and rebooted it. When I went to remote into it again the popup came up again about allowing the connection but it disapeared by itself after about 5 seconds and the connection opened up ok. Regardless of whether the box is checked or not, I still get the popup for a few seconds on the home computer but then it goes away and the connection comes up fine.
This toggle works for normal PIN-connections only, with the unattended access we display this pop-up for a couple of seconds in case there is an open Windows session so that we could warn the active user that somebody is trying to remote in. You're right, you may either accept the connection or decline it and if you do nothing it will be accepted automatically.
This behavior makes sense in the context of managing somebody's PC so that you will not be disturbing them and could easily manage it during non-business hours, when nobody is at it at the moment, or when allowed to.