I record from 2 sources, Primary = microphone, Secondary = Win7 sound.

I've tried recording briefly with both the "Two sound mixing" checked, and unchecked, and didn't see or hear anything different in the video.

Wot difference does it really make? And which one will give a smaller video size?

Not sure about the file sizes, I would say with "Two Sound Mixing" on it's lower, but don't take my word on it.

Also, the two sound mixing only enables you to have two or one audio tracks. Two is useful for video editing, if you wish to modify microphone sound outside of system volume, one is for those that want to upload straight up to YouTube (example).

Two audio tracks will be on the video if Two Sound Mixing is unchecked
One audio track will be on the video if Two Sound Mixing is checked (mixing the two audio tracks into one track).

Read more: http://www.bandicam.com/faqs/multiple_sound_recording/