Terminal gaps are not penalized. This parameter specifies how many. This is a penalty for each gap in the fast alignments. It has little affect on the speed or sensitivity except for extreme values. The actual matrix that is used depends on how similar the sequences to be aligned at this alignment step are.
Different matrices work differently at each evolutionary distance.
For further help, please refer the original ClustalW document . Terminal gaps are not penalised. For example, positions that are rich in glycine are more likely to have an adjacent gap than positions that are rich in valine. It is for using FAST algorithm for the alignment guide tree. Gaps that are less than this distance apart are penalised more than other gaps.