This policy setting controls whether Outlook 2007 users can demote attachments to Level 2 by using a registry key, which will allow them to save files to disk and open them from that location. Outlook 2007 uses two levels of security to restrict access to files attached to e-mail messages or other items. Files with specific extensions can be categorized as Level 1 (users cannot view the file) or Level 2 (users can open the file after saving it to disk). Users can freely open files of types that are not categorized as Level 1 or Level 2.
If you enable this policy setting, users can create a list of Level 1 file types to demote to Level 2 by adding the file types to the following registry key: HKEY_CURRENT_USER\Software\Microsoft\Office\Outlook\12.0\Security\Level1Remove.
If you disable or do not configure this policy setting, users cannot demote level 1 attachments to level 2, and the HKEY_CURRENT_USER\Software\Microsoft\Office\Outlook\12.0\Security\Level1Remove registry key has no effect.