The Auto Adjust Quotes item in the Quotes submenu of the Convert menu is a toggle that affects all future text you enter via the keyboard into the contents of all clips. This lasts until you turn off Auto Adjust Quotes.
When Auto Adjust Quotes is on, quotes are automatically converted in any text that you enter when you move the cursor away from the line you entered the text on. This delay ensures that AceText can correctly distinguish between single quotes and apostrophes. It also ensures that the syntax coloring scheme can match up opening and closing quotes when the line is complete before any conversion is done.
If the clip uses a syntax coloring scheme then Auto Adjust Quotes uses the quote conversion rules of the syntax coloring scheme like the Adjust Quotes command does. If the clip does not use a syntax coloring scheme then the Auto Adjust Quotes converts straight quotes to smart quotes like the Straight ⇒ Smart Quotes command does.