I think he is implying that perhaps that could have been a new thread in itself, although it has been asked before, by my goodself! I wondered the same thing once.

It is not obvious. Like you say, you have to set the 'Default Comment Display Mode' in System Admin\Preferences to 'Flat' first. That will ensure the forum is displayed flat for anonymous users, but then individual registered users can select in their own profile whether to have it flat or nested (whichever they prefer). Also, in the forums themselves, you should see on the left the word 'Flat' or 'Nested' (depending on what you set in Preferences) to allow the user to swap between views by quickly clicking it like a hyperlink.

Hope that helps.