Yes it is the number of decimal places. If your data is in meters and the accuracy of data is in the millimeter range then you probably don't need more than 3 decimal places (0.001m = 1mm), but for geocoordinates which may be in degrees latitude and longitude you will need 6 decimal places just to be precise to the nearest 11cm (1degree latitude = 111,000m so 0.000001degree latitude = 111mm)

If you export your data with precision = 1 then the points will be rounded to 1 decimal place and points that may have had unique coordinates with 6 decimal places will now share the exact same point and appear as one point with clear space around them. There are still the same number of points but many of them will be 'duplicates'.

If you export your data with precision = 10 then it is much less likely that any 2 points will share the exact same coordinates and so you will see many more discrete points in your cloud.

There is no facility in photoscan to change the number of points in your point cloud other than to manually remove, use gradual filters (sparse cloud only), classify points and then delete classes or select by colour (dense cloud only) or just build the cloud at a lower setting in the first place.