Uploading as ASCII refers to using an FTP program to upload files. Basically text files
are stored differently than a binary file, like an image, or a zip file. Typically an FTP program will know what method to use based on the file extension ..
.zip , .gif , .jpg would all be uploaded as binary files
.txt, .php , .html would all be uploaded as ASCII/txt
Since the actual workhorse of the script has no file extension, your FTP program can't automatically tell which method to use. Accidentally uploading the "directory" file as binary won't necessarily break it, but I suspect uploading & downloading a few times with the wrong method would eventually corrupt the file, filling parts of it with gibberish.
Here is an informative page on the subject
http://courses.wccnet.edu/computer/mod/na36c.htm