Williams will make a total of $6,331,404 in his final contract year, and the decision to exercise the option gives him restricted free agency status following the completion of his contract. In other words, the Wolves will be able to match any offer given to Williams when he hits free agency.
The Timberwolves were already set to be over the cap before this signing, and this decision shouldn't change much in terms of what they'll do going into the 2014 offseason. They'll still have the ability to exercise their mid-level exception, for example.
In 4 preseason games this fall, a slimmed-down Williams has averages of 11.3 points and 5.0 rebounds in 25.8 minutes per game, while shooting .424 from the field and .250 from beyond the arc. He averaged 12.0 points and 5.5 rebounds in 24.6 minutes per game last season, starting in 56 games for the injured Kevin Love.