Please only use the 'confidential' tags to hide confidential information. Hiding your entire question does not help other people with the same question...
Anyway, the 'Include Child Items' option refers to actual existing child items in the selection.
So in the menu assignment, it affects whether nested menu items are included or not.
If you have a page with its own menu item, links on that page that do not have a matching menu item, will inherit the active menu item from the page you are linking from. So Joomla (and AMM) sees that as the active menu item. The 'Include Child Items' option has no effect on these linked pages.