In compatibility mode, this diagram dialog box doesn't have as many choices.
What's compatibility mode all about? In short, Word is telling you that the document uses an older file format. Because that file format doesn't understand some of the new features in the new version of Word, those features are either turned off or modified so that they approximate an older version of Word.
In the example shown here, an older Word 2003 document was opened in the new version of Word. Notice that the title bar includes (Compatibility Mode). And as you can see, the Choose a SmartArt Graphic dialog box doesn't appear at all — the Diagram Gallery appears instead. In fact, this Diagram Gallery is just like the one in Word 2003 and has the same range of functions.
It's a good idea to stay in compatibility mode if you know you'll be sharing your documents with a lot of people who are using older versions of Word. That way, what you see is what they see. And you will be able to anticipate what they can and can't do in their version of Word.