Organic groups content propagation direction
That screenshot is from Drupal 6.

In Drupal 7 the organic groups module works much differently in that it now uses fields to store its settings.

With Drupal 7 organic groups you need to go the the "OG field settings" administration page (admin/config/group/fields) and configure which fields appear on which content types.

The way that admin page works can be a little confusing but it's fairly straight forward once you get used to it.

The fields provided by the Subgroups for Organic groups module are:


Group user inheritance
Group user permission inheritance


On that admin page add those fields to your sub-group content types, then you can go to the content type field settings for those content types (in the admin/structure/types section) and you can configure default for those fields that will be used whenever sub-groups are created.

If you want to stop content administrators from being able to change the value of that field you can then use the field permissions module to restrict access to those 2 fields.

This is the same way you have to manage the fields from the base OG module (Group and Groups audience) and the fields in the OG access sub-module (Group visibility and Group content visibility).