Payment Fees refers to the charges incurred by you while processing the order through a payment gateway.
If you want to keep an account for the Payment Fees then choose Yes. The payment fees will be accounted for as Credit Notes in Xero. For more information Click Here.
However, If you choose Not to account for the payment fees, you will have to manually account for the expenses incurred for the same so that your bank reconciliation is accurate.
Note: Ensure this option is set to No if you have Paypal as one of your payment gateways on Shopify.