In very simplistic terms, the soft proof dialogue is giving you a visual representation of what would happen if you converted the image to the respective print profile. When you convert to a different profile, the RGB numbers are altered in order that the visual colours remain as close as possible to the original. For example, a colour like R219, G57, B92 in AdobeRGB may need to be R200, G62, B100 in sRGB in order for the colours to stay visually the same (I made those numbers up so don't go trying it and telling me it's wrong ).
By checking Preserve RGB values you're overriding that profile conversion and getting a visual representation of what will happen to the colours if they're not properly mapped from the source profile to the destination. The same as doing an Assign Profile.
You can test this yourself. Open an image, duplicate it. Convert one to your chosen paper profile using Edit>Convert to Profile. Now go to the second and proof it with the same profile. Make sure BPC is the same in both (both checked or unchecked) and turn Simulate Paper Color off in the proof setup. They should look the same. Now do the same by assigning the profile to one via Edit>Assign Profile and in the proof setup check Preserve RGB with Simulate Paper Color turned off.
In other words, Convert to Profile/Preserve RGB unchecked = Good and Assign Profile/Preserve RGB checked = Bad.