Exemptions are created in this plugin only. They are when you tell the plugin that a specific group of books (or authors, depending on the type of duplicate check you ran) that it presented you with are actually not really duplicates. It means that the next time you run the duplicate check you will not be presented with that particular combination of books appearing together again.
You create exemptions using the menu option "Mark group as exempt" on the plugin menu, or "Mark all groups as exempt".
It becomes particularly useful when you use some of the "fuzzier" algorithms which are more likely to present you with groups of books that actually are not duplicates of each other.
For example an "Ignore Title, Fuzzy Author" search takes the first letter of an authors first name along with their last name and compares those, so that books by "L. Child" and "Lee Child" would appear as a group. It could be that you have another author called "L.J. Child" in your database that would also be in that duplicate group from this algorithm, but in actual fact it is a valid different author. So you would want to resolve any genuine duplicates out of the group (e.g. lets say L. Child and Lee Child were duplicates so you renamed the L. Child book authors to Lee Child). Then you can mark what remains as exempt in future, which would be an exemption of L.J. Child with Lee Child.
Note that exemptions are for that particular combination of book titles or authors, not that they are never considered as possible duplicates at all. If for instance you added a book by an author called Larry Child and ran the same search again of Ignore Title, Fuzzy Author, then (Larry Child, Lee Child) would be presented as one group, and (Larry Child, L.J. Child) would be presented as a second group. Because of the exemption it is not putting all three authors together in the same group.
The change made from 1.0 to v1.1 of this plugin was to change the way exemptions were stored in the configuration file to something far more efficient. However by doing this, it meant that any users of the 1.0 version would lose their exemptions they had already created, as it was too complex to try to migrate them to the new way of storing them. That is what the warning was about.
Hope that makes sense.