How to use the "Render Views filters as select list" option in an Entity Reference field?
1.  "Entity selection Views" helps you to deal with options list in the entity reference widget (on node add/edit form). E.g. if you want to reference some nodes that have specific term reference. Entity reference view can help you you.

As I see you want to reference "child" Trait nodes of special category to one "parent" Trait node. (At list your View shows it). In this case you don't have to use contextual filter. You can use ordinary "filter criteria" and set target category value.

2. "Render Views Filter as a select List" - it's not a widget for your content type add/edit form. But it's a widget for exposed filter in views. If you want to use this field as an exposed filter in views by default it's an autocomplete. But this option makes filter as select widget. If you read the "Render Views Filter as a select List" description, you might see that developers advice you not to use this option if you have more that 100 referenced entities. Just imagine a select widget with 100 options and query with WHERE condition. Just mind it.