On the SNES Mini there are three video options: 4:3, CRT, and Pixel Perfect.
4:3
Old CRT televisions had an aspect ratio of 4:3. This is slightly wider than tall. When you played your SNES as a kid this is the aspect ratio that you most likely played on.
CRT
CRT Mode is a 4:3 aspect ratio with a CRT filter applied that attempts to mimic the visual effect of older CRT televisions. This adds some blur and scanlines.
Pixel Perfect
The original SNES internal hardware created images at an almost-square 8:7 aspect ratio that were then slightly stretched to 4:3 to fit older televisions. With the advent of emulation, some fans came to prefer to play at the internal resolution of 8:7 as it was more accurate to the intended design of the games.
Here is a video about this exact thing.
Given that playing SNES games at their "pixel perfect" 8:7 ratio is a newer phenomenon that came out of the emulation community, it's actually surprising to me to find this setting on the Mini SNES. It shows some awareness on Nintendo's part, which is pretty cool.
Ultimately, there's no video mode that is
best to play on, tho I'm sure some emulation fans would argue otherwise. Just use whatever you think looks best.