The "System sleep on display-closed mode" option is available through the app user interface and applies to MacBook machines only (not to Mac desktops).
On some MacBook setups running macOS Monterey, with one or more DisplayLink device connected, by default the system remains active after closing the lid. With this new option you can force the machine to enter sleep mode right after closing the lid.
Here are the steps to enable it:
1. Click on the DisplayLink Manager icon located in the menu bar:
2. Check the option "System sleep on display-closed mode" in the Home tab.
3. Close the lid of the Mac.
The machine will enter sleep mode automatically, so all the displays are powered off.
The machine resumes itself when re-opening the lid or when waking it up using an external keyboard or mouse (in this case the machine enters clamshell mode)