All video games give players some choice, some more than others. Witcher 3 has plenty of customization, but choosing an option you're given at the beginning of the story can give you even more choices. If you want to expand Geralt's path, consider selecting it.
What 'Simulate Witcher 2 save data' means in Witcher 3
If you choose Yes to the "Simulate Witcher 2 save data" option while playing Witcher 3, you'll get a few more options in gameplay. Essentially, choosing affirmatively means you'll make some decisions from the previous game, Witcher 2. If you choose not to do this, the game will decide on default choices from Witcher 2. Neither choice majorly affects gameplay, but it can give you different options for dialogue and possibly NPC interactions.
Should you Simulate Witcher 2 save data in Witcher 3?
Whether or not you choose this option is up to you. But it seems the most popular choice by players is to choose Yes. This is because choosing the positive option means you'll get some customization within the gameplay, especially with dialogue. Many believe that opting for it will give you more immersion into the roleplaying aspect of Witcher 3.
Want to read more about Witcher 3? If so, check out How to show FPS counter in Witcher 3 on Pro Game Guides.