This policy setting allows you to manage whether Internet Explorer converts Unicode domain names to IDN format (Punycode) ...

This policy setting allows you to manage whether Internet Explorer converts Unicode domain names to IDN format (Punycode) before sending them to Domain Name System (DNS) servers or to proxy servers.

If you enable this policy setting, you must specify when IDN server names should be sent:
0) Unicode domain names will never be converted to IDN format
1) Unicode domain names will be converted to IDN format only for addresses that are not in the Intranet Zone
2) Unicode domain names will be converted to IDN format only for addresses in the Intranet Zone
3) Unicode domain names always be converted to IDN format

If you disable or do not configure this policy setting, the user can control this setting by using the Advanced Options in Internet Control Panel. By default, domain names will be converted to IDN format only for addresses that are not in the Intranet Zone.