Camect connects via the Wyze cloud by default no matter which firmware you're using. Wyze uses a P2P system, so, as long as it's possible for Camect to connect directly to your Wyze cam, the video stays local to your network after the initial authentication to the cloud.
To use RTSP, you have to add the camera manually using the RTSP url (home settings > devices > add new camera using type "Stream URL").
In theory RTSP removes the dependency on requiring that the internet be up when you connect to the camera. Although that dependency was gone when the RTSP firmware launched, I've seen some claims that the camera still requires internet under some circumstances now. (We have not tried to verify this.)
The RTSP firmware isn't maintained much, and video quality seems to be better for some people on the regular firmware.
Both choices have some quirks (e.g. We've seen both firmwares occasionally get into states where you need to reboot the camera.), but in general I think there's no strong reason to use the RTSP firmware, other than if it works well for you, the fact that it's not getting updated may be an advantage. (i.e. It's likely to continue working with no surprises.)