By selecting "Don't use in Funnel", you are essentially hiding the data as well as the dimensions and metrics provided by the Data Source. This effectively prevents the Data Source from being used in the Data Explorer and your all other data destinations such Data Warehouse Exports, GA Upload etc. If you want to start using it again, simply select "Use in Funnel"
Note that this will not make Funnel will stop downloading data, to do so you can instead use the "Pause downloads and mute warnings" option, described in this article.
Why would you want to do this? One example is if you're no longer using the data source, but you think you might start again the in future so you don't want to remove it. This makes it so that the connection is still there, the data is still coming in, but it's not being used until you would like to use it again..
Another example of why you would use this toggle, is that maybe you have connected a data source multiple times and the data is being double counted by having several connections on. In this case, you would be able to select "Don't use in Funnel" for the duplicate data sources and make sure you're not using duplicate data. To read more about this case you can read this article.