"Allow to create item if it is not in inventory?" - item is created when bot need it: for example, he needs to gather wood, so hatchet/axe will be created
"Allow to give item when respawning?" - bot will be spawned with this item
Bots are not crafting anything, items are just spawning
For example, you have next list:
rifle.ak
pistol.m92
pistol.python
Bot needs to fight, and he starts searching for weapons in his inventory based on this priority list from config. If "Allow to create item if it is not in inventory?" is not enabled and no such item in his inventory, he skips it and searches for next item. So, you can setup him to use looted weapons or spawn himself needed weapons from config, no crafting here