Imagine you have these items:
A - consists of A1, A2 and A3
A1 consists of AA1 and AA2
If you have a demand for 1 x A, and create an Item production order for it, then that production order will create a demand for Item A1, which will be produced on a separate production order. So you will end up with 2 production orders, with one production order line on each.
If you create a project production order, you will generate one production order with two production order lines, one for product A and one for product A1. The production order line for A1 will be indented below the line for A, and will be planned to finish before the line for A.
This issue is also related to the field "Production Principle" on the item card.