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Are these files automatically converted to ISO because of the project settings |
No. It does not change anything but may help the IDE to recognize file encodings when it opens them in the editor.
In particular, if you open a file it will fist check if you ever opened this file and take encoding from this history. If you never opened the file, it will check directory settings. FYI you can set different default encodings for different directories in the project. If this encoding is not set, it will keep going upper toward project root directory until it reaches it or an encoding is specified. What you set for the project is acctually applied to the project root directory.