Multisite Privacy Question about who needs Password

Just curious..I saw this note on the sign up page

"Note: Anyone that is a registered user of this site won't need this password."

What does this mean exactly? Does it mean registered user of my network (the main site) or registered user of THEIR blog they are creating "theirblog.mysite.com" ?

If it is the latter, how can I remove this "note" so it doesn't confuse users as it has me. It sounds like anyone part of my main site (other blog creators) doesn't need password to see their blog

If this is the case, this plugin is not useful to me. I need no one to be able to see their blog site without password except for those they add as "Users" to their blog. Thanks!

Mike