but it just seemed to be using a lot of processing power and my computer couldn't keep up. What does that option do and when would I use it?
When your GPU can't decode it. Means they are actually either x264/x265 or too large for your GPU decoder/unsupported by your GPU decoder.
ie h264 larger than 2160p can not be decoded on hardware.
h264 up to 2160p but encoded at L6.x is not an official format, thus is x264
x basically means software codec, processed by the CPU. As you've noticed first hand, this needs a pretty beefy CPU if it's HEVC.
This mpeg-4 level table gives a pretty good idea of how it works.
L5 = AVC/h264
L6 = HEVC/h265
Only formats that are in that table can be decoded by hardware. Other combinations are unofficial and need a software decoder.