Checking someone's code is a one-to-one thing, so it happens in your direct message with them - and anyone you have checked there shows as checked here too. Waiting on everyone in a group to be checked would hold up people who never asked for it.
Every direct message is encrypted, always, and that part cannot be switched off. This setting is about how carefully the other person's lock is checked before your messages are sent to it.
Only the people in the conversation can open them. Not OrangChat, not somebody who steals our database, not somebody who turns up with a court order - we do not hold a key we could hand over. This is on for every direct message and there is no way to switch it off.
Your direct messages are locked on this phone before they are sent. The key was made here, lives in the phone's secure hardware, and cannot be copied off it - not by OrangChat, and not by anyone holding a database backup.