This is a problem that I have asked about many times. From Excel 2007 onwards the capacity of Excel Rows is waaaaay more than previous versions (in fact it is 1,048,576!). So, why is Access limiting me to 65000 lines?!!! Pre 2007 times. Not quite pre- historic but its sure as heck feeling like it.
So, by leaving this options ticked, you are enabling this restriction. Just un tick the option and you can by pass the Windows clipboard removing the restriction.