Select 'Notification light' to change the appearance of the notification LED. Choose 'Apps' to adjust the apps which trigger the notification light. Selecting 'Notifications' will let you customize which alerts activate this feature. However, if you choose to always have an always-on display on, it will always be active.
It will remain active as long as you don't interact with the alert.
If you choose to have AOD appear only on notification, when the screen is off, AOD will turn on when a notification appears. Whenever you receive an alert, a light will appear around the circular cutout on the top of your display, and a small icon will appear of the app you received the alert from.