They since updated the website since 27th May when Matt answered but now the procrun page explains it a bit better:
One of jvm, Java or exe. The modes are:
jvm - start Java in-process. Depends on jvm.dll, see --Jvm.
Java - same as exe, but automatically uses the default Java executable, i.e. %JAVA_HOME%\bin\java.exe. Make sure JAVA_HOME is set correctly, or use --JavaHome to provide the correct location. If neither is set, procrun will try to find the default JDK (not JRE) from the Windows registry.
exe - run the image as a separate process
Which essentially explain the method Java is launched (in process, external, external with a different JVM); but I wonder what's the difference really, they should be pretty much the same IMHO (except if the default is an unoptimized JVM and you choose an external "server" one, which could benefit with its more aggressive optimizations, I can only guess).