It's the first time I see this option:
When was this option added? And do you have any opinion on whether we should prefer this as a "flag" rather than VTC with "Needs detail or clarity"?
I'm a bit confused about this. 🤔
This option used to be named "should be closed"*. It was changed to "needs improvement" in April 2020, going by the date of the linked post.
It leads to the various close options. Users who don't have close and reopen vote privilege may cast flags to close on the question, which puts it into the close votes review queue.
* I don't know when or how the option of flagging to close came into being. It must have been in the very ancient past.