When questions are run using the 'Interactive with multiple tries' or 'Adaptive mode' behaviour, so that the student will have several tries to get the question right, then this option controls how much they are penalised for each incorrect try.

The penalty is a proportion of the total question grade, so if the question is worth three marks, and the penalty is 0.3333333, then the student will score 3 if they get the question right first time, 2 if they get it right second try, and 1 of they get it right on the third try.