How are 'Words' and 'Characters' counted for Asian (Chinese) languages?

This is a very simple, and very important question, but I can't see a clear answer everywhere. 

In my project, 'Use word-based tokenization for Asian languages' is NOT ticked. It would be good to know how this would affect the word count. How are Asian words being 'tokenised' and what does it mean? 

My language is Chinese. I don't see how 'words' are defined here.