What is it for?

Stereo mode is for processing stereo signals like keyboards, stereo guitars DI, and other types of stereo sources.

Does the stereo mode affect the output?

Not really. In both stereo and mono modes, your plug-in output always should be stereo due to the time FX section and the cab-sim microphones. 

So, the stereo mode just enables a second input to the plug-in.

Can I connect two instruments in the same plug-in instance?

Yes, you can... but we don't recommend that if you want to do a common stereo guitar recording session.

Original hardware has the power to process only a mono input signal. With the Stereo switch, you are able to process a stereo input signal. Ideal for running stereo guitar tracks or experimenting with any stereo sources.

Note that the CPU usage will be double in stereo mode. Try to load two or more single mono instances duplicated in order to get a better CPU performance and control.

Why my mono/stereo switch is grayed out?

If you want to activate that switch, just enable two inputs in the standalone audio settings or load the plug-in version in a stereo track within your DAW.