"Both" sends out the mouse and keyboard commands over both the USB and the Bluetooth channels at the same time. If the bluetooth is not paired with anything, then it is no different than USB only. If the USB cable is not plugged in a PC, for instance it is plugged into a portable battery pack, then it just a Bluetooth mouse and keyboard.
If you have the quadstick connected to a PC over USB and a iPad or something through Bluetooth, it could get really confusing because both hosts would be receiving commands. You would not want that.
If you have two hosts, the use separate USB and Bluetooth mouse configuration or modes.