This setting affects IMAP access (even with SSL/TLS turned on). Using login methods, that require a knowledge about user's password (e.g. Login, UseBestLogin) fails, when this setting is off.
Mail.dll uses IMAP over SSL/TLS to access Gmail. This is secure and safe way of accessing an email server. It relies on .NET framework security model.
Workarounds:
Google support page you pointed to doesn't make much sense. It doesn't say what do they mean by 'less secure' exactly? What makes Microsoft Outlook and Mozilla Thunderbird 'less secure'? Which versions? 'Less secure' than what?
It seems it is not an issue of whether or not client application is implementing the latest version of SSL/TLS etc., Google simply tries to limit places that store users' passwords.