The B1 and B2 terminals are for thermal relay AND for braking resistor. Doesn't this mean if the thermal relay trips I have no dynamic braking? I just don't see the advantage of this wiring configuration.
They want you to install a fuse to keep the resistors(and other things) from catching on fire. Yes, you will lose dynamic braking at that point and the drive should trip on high DC bus voltage when it tries to brake and it needs the resistors.
That's not a motor or drive thermal switch but one mounted in the brake resistor housing. If the brake resistor has been sized too small or the braking energy is unexpectedly too high or if the cooling air is somehow cut off to the resistors, then the switch will open and save the resistors or prevent a fire.