According to the closed discussion at https://sourceforge.net/p/passwordsafe/support-requests/525/ PasswordSafe file encryption for small files uses Blowfish and Twofish for large files (i.e. > 4GB).
Regarding Blowfish, Bruce Schneier, Blowfish's creator had this to say "At this point, though, I'm amazed it's still being used. If people ask, I recommend Twofish instead."
Switching to Twofish for file encryption for all files would break backwards compatibility. Therefore, the feature request here is for a command line option to specify that Twofish be used regardless of file size for file encryption and decryption. This way newer versions of PasswordSafe provides the option to use only Twofish for file encryption without breaking backwards compatibility with files encrypted with older versions of PasswordSafe.