When you're in the File Explorer in the Dropbox folder you're working with, you can delete as normal if you like. Usually there's a separate window that pops up that you need to alt tab into. Dropbox is asking whether you want to delete the file just in that location from off your hard drive, or whether you want to delete everywhere. In the case of the everywhere choice, you will be deleting that file or folder from both your hard drive and from your online Dropbox. This is a good feature they have, so that you could delete big items from your hard drive while still keeping them inside your Dropbox.

Matthew