It is only related to contacts. It is the setting of how your CONTACTS are displayed. I'm sure the OP appreciates you attempting to defend his frustration, but your position makes no sense. I would never think to look in general settings for a setting for the display of my contacts.
As for if third parties can use it, go ask them. Apple can use it though.
Options that change the way things are displayed are best left to a 'display' section of the options.
This could house the short names option, the battery % option, etc.
It's an option more relevant to 'display' than 'contacts' - it doesn't change the contacts in any way, shape or form, it just changes how they are 'displayed' throughout the OS. It is purely a GUI option.