Confirming that this issue/confusion is still present in Ubuntu 8.04.4
LTS Desktop.

@Bruno Girin: If this is the case. Then it's very confusing for me. I
mean I'm not a coder but user. From my user point of view "Apply
permissions to enclosed files" means "Apply permissions to both enclosed
files and folders".

About renaming the current button to "Apply permissions to enclosed files only"
And adding a new button right below and name it "Apply permissions to both 
enclosed files and folders"

So there would be two buttons
   "Apply permissions to enclosed files only"
   "Apply permissions to both enclosed files and folders"

Personally I have no use for the first button. It's the second one that
would be useful to me. Command line is to hard for me. I need something
visual/UI.

-- 
gksudo nautilus won't set ownership/permissions on files below
https://bugs.launchpad.net/bugs/165113
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