What does it mean when a VPN add configuration window warns: “All network activity on this Mac may be filtered or monitored when using VPN?”

All it means is that if you use a VPN you are not magically cloaked from being monitored by your VPN provider. Your VPN service can still monitor you.

It’s awkward wording, but all it means is that when you use a VPN you might be cloaking your real IP address from the world, but if you use a VPN all traffic must go thorough that VPN so they would know where you are and what you have looked at. It’s generic disclaimer that is meant to let you know VPNs don’t completely shield your activity; that VPN providers and ISPs when you don’t use a VPN can still monitor you.

So if you “Allow,” then the VPN will be activated. If you “Disallow,” then the VPN will not be activated.