As always I am unsure if I should start big reasoning or just tell what I want and it is evident enough for the interested reader to understand me.
Of course, if you got a undead foe on your target with this setting it should react as if you have no target and the spell goes to your self.
And if you make this setting for a spell like a fireball and you unselect Foe, the target is always positional or directional.
For some spells like Hold Monster Mass or Crushing despair or even Fireball, I wish it would be possible to cast it on a friend or on your self, it doesn't affect the friend or yourself then of course, but the targets around him. I think it is obvious why this could be an useful option.
I think it could be even possible to select a specific party member this way, so you could set a Button for the Heal spell and it automatically cast this spell on a party member without the need to change your hard target.