You might benefit from watching the print and cut video to see the difference clearly, but simply put - if you are doing a print and cut you want the image to be set to print and cut print (so when you send it to the printer it knows what to print) and the cutting/trace lines will be set at print and cut cut.
Here is a quick example so you can see the image is the print and the traced outline is cut. I just pulled it apart so you could see the two. Hope that helps.
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