Interactive User causes the action to run in the context of the user who is logged in to that workstation. It gives the action whatever rights the workstation's User object has been assigned. Usually, this is just the user access rights. If the default user rights have been granted, the action cannot change settings that require administrative rights. For Windows 95, choosing Interactive User specifies that the user's rights are used for access.
System causes the action to run in the background as a local service.
When the action is dispatched, it runs under the context of that local system. The action is granted administrative rights to the workstation. For Windows 95, choosing System specifies that the workstation's rights are used for access. Use this option for applications that require user interaction. This method is unsecured, because the operating system permits address mappings between the user and system space.