It means, that compiler generates bytecode with this version. Java 14 can run jar with any bytecode above.
Theoretically it is better to select the largest value here, because Kotlin compiler has more options for code generation, e.g. it can generate more effective instructions.
However, as I remember, Kotlin compiler for now (e.g. for version 1.3.72) generates the same bytecode for all values 1.8 - 13.