{shell-escape} is about the “--shell-escape” argument, i.e. to enable external running of commands from inside the ‘.tex’ file.
If enabled, {shell-escape} mode allows the use of a list of commands which can be specified using \write18{commandlist} in a .tex document. The command \write is a TeX primitive used to write to different streams. The use of stream 18 means that TeX is asking the operating system to do something. The use of \write18{} is usually disabled for security reasons. It must be enabled explicitly using latex --shell-escape texfile.