The apply clip mask to DEM menu option will set all DEM pixels outside polygons in a GIS file to be blank. This will speed up all algorithms such as flow processing and flat and pit pixel removal as pixels outside of the clip boundary will not be analysed. It can also be used if you wish to identify an area outside which the original interpolation or sampled DEM is not valid. This will remove data from these areas to enable re-sampling from another source or simply so as not to present inaccurate information.