Monitoring means: hearing the track you're recording. The best way to achieve this is in hardware ("direct monitoring"), as this doesn't introduce a delay. Soft Monitoring can be used if you need to hear effects like the Guitar Amp while recording. It can also be used if your hardware doesn't support direct monitoring.
Some sound devices come with a software control panel that allows for direct monitoring. Some devices have a hardware knob to control direct monitoring. Not all sound devices have monitoring features though, in this case you can consider using an analog mixer.
You can switch on Soft Monitoring using the Mon button at the top of the main window. If this option is used recording audio tracks will apply any effects to the incoming audio signal, and then send it to the Audio Out Device so you can hear the sound including the effects.
It is not recommended to use this feature as a means of monitoring the dry signal you're recording, as there is an inherent latency between the input and the output signal. Using a low latency will increase the risk of glitches in the recordings. All these problems can be avoided using direct monitoring.
Note: this option does not work with the Early Windows audio driver type.