Haha, I do, I just tend to do most of my work at night.
I think you've partially got it.
When you enable the Require a prefix setting, it will force the user to select a prefix when submitting the topic, but they can still provide other tags.
When you enable Prefix: Users can only choose from a specified set of prefixes, this means users can only add a prefix to the topic, not any regular tags.
When both of these settings are enabled, the user must select a prefix. When only the latter is enabled, adding a prefix is optional, but still the only option available.
If you want the user to be able to use both tags and prefixes, you'll want to use Open: Users can use whatever tags they like instead. You can still require the user provide a prefix along with this, and define a list of what prefixes they can use if you wish.
Does that make sense?