Here is an example of how the Site Map index file settings work.
Suppose you have a set of files that look like this:
about (this is a folder)
index.htm (Title is "About this site")
contact.htm (Title is "Contact us")
more.htm (Title is "More info")
The generated site map will use the index file for the folder entry and the result will look like this:
If a folder does not contain a recognized index file, or if you turn off Use title of index page for folders, a human-friendly form of the folder's name will be used for the folder entry in the site map. In the above example, the resulting site map would look like this: