Which tools exactly will it conflict with?
Personally I am unsure of a full list, but this StackOverflow question says
"This includes find, kill and sort [...] The problem with the first 3 (and similar) is that they exist in both OSs and function differently in each."
They may not be used often by you but are common enough that Git feels the need to warn you about unexpected behavior.
Anecdotally, they are more likely to appear in third party programs (mostly scripts), so the level of effect most likely depends on how much you use programs that rely on any of those commands.
Is this what the 2nd option does? ("Use Git from the Windows Command Prompt -- This option is considered safe as it only adds some minimal Git wrappers")
Basically it allow you to use Git from the command line (cmd.exe) with all the common Git commands. This option is perfectly safe and useful for 99% of what you would likely want to script or manually implement from a Windows command line. I use this option and have never personally encountered any issues.
After you install, you may also want to look at a graphical git interface (such as GitHub Dekstop for Windows or SourceTree) and don't forget that Git bash comes with the installation as well.