FS Sound Studio supports sounds configurations created for FS2000, FS2002, FS2004, FSX, CFS2 and CFS3. However, not all sound options and syntax are valid in all cases. For example FS2002 introduced new syntax and keywords not supported in CFS2. Selecting a "Mode" tells FS Sound Studio which Flight Simulator you're working with so it can create the right syntax for the sound.cfg file.
To specify the mode, Select Options:FS Mode and Root Directories... from the main menu. At the top of this window will be a Mode section which will allow you to select the right mode.