Assuming you are talking about the user state my reading is that the default value of false will cause salt to assume that the password is already a hash and can be installed into /etc/shadow as-is. Alternatively if you set hash_password to true salt will treat it as a plain-text password and it will hash it prior to putting it into /etc/shadow. For security reasons storing/distributing the already-hashed password is preferable hence why it is the default. If however you end up in a situation where you really want the password to appear in plain text (e.g. to document somewhere what it is) you can (but really you probably shouldn't).
some_user:
user.present:
# $ mkpasswd -m sha-256 "look-ma-my-password-in-plain-text" "somesalt"
# $5$somesalt$90WbN9mBC3iA9YXYOoU8o2FVkHtTFqixIzFkUdkL3X8
- password: $5$somesalt$90WbN9mBC3iA9YXYOoU8o2FVkHtTFqixIzFkUdkL3X8
- hash_password: False
some_other_user:
user.present:
- password: look-ma-my-password-in-plain-text
- hash_password: True
I'll admit that the documentation would benefit from mentioning that the password argument may be a clear text password if one sets hash_password to True.