When:

• undefined (default) provide suggestions as warnings to editors
• true unreachable code is ignored
• false raises compiler errors about unreachable code

These warnings are only about code which is provably unreachable due to the use of JavaScript syntax, for example:

function fn(n: number) {
  if (n > 5) {
    return true;
  } else {
    return false;
  }
  return true;
}

With "allowUnreachableCode": false:

// @errors: 7027
// @allowUnreachableCode: false
function fn(n: number) {
  if (n > 5) {
    return true;
  } else {
    return false;
  }
  return true;
}

This does not affect errors on the basis of code which appears to be unreachable due to type analysis.