If you check that they should continue processing, the file goes to the visa office and the applicant is still evaluated, but they will be refused because the sponsor is not eligible. In that case, you then have the opportunity to file an appeal, and if whatever was the cause of your ineligibility is resolved at that time, your appeal can be allowed and the visa office directed to continue processing the file.
If you opt not to continue with processing, the file is returned to you and you must deal with whatever caused the ineligibility before you re-submit the application. You will lose the $75 sponsor processing fee, and must pay it again.