Scrap everything disables Fallout 4's precombined geometry (precombines) and previsualization data (previs).
This significantly impact game performance by increasing the number of discrete objects the computer must manage and also the amount of geometry being rendered.
Precombines essentially bundle multiple objects together so the computer can treat them like one thing. This improves performance, but the cost is that you can no longer interact with, move, or destroy the parts independently. Precombines are static and immovable.
Previs is generated using the static and immovable precombines. Basically, it precalculates what objects should and should not be visible from different perspectives. This means the computer doesn't need to waste time rendering an object which is occluded by a large piece of static scenery, like a building.
When you break the precombines into their parts, then each piece can be moved and scrapped independently, but now the computer has to load and manage all those objects independently. Moreover, the static geometry that previs is based on is gone, so previs is disabled. Since the computer no longer knows which objects are occluded, it wastes time rendering them in the background even when the player can't actually see them.
The objects introduced to settlements by the player do not benefit from either the precombine or previs systems, but static objects that already exist in the settlement do, e.g. Sanctuary's houses.
A major problem with large settlements is that eventually you run into the problem of having too many objects to manage and render and the engine starts crashing. This can already occur in some settlements even without disabling precombines, but it becomes a lot worse when they are. You may discover that some settlements become inaccessible due to performance issues and crashing.
The more powerful your hardware, the less of an issue this is, but the engine doesn't seem to scale very well, so even the most powerful rigs may have issues.