The stretch provision lets a team that releases a player spread their remaining guaranteed salary over more seasons than their contract had left, lowering the yearly cap hit at the cost of carrying it longer.
In HoopSim you can stretch a cut with more than one year left during the offseason, staff free agency and preseason. This season still takes its full amount; the later years are added up and spread evenly over twice as many seasons plus one, smaller each year but longer. There is no stretch during the draft, free agency, training camp or once the regular season starts. The cut screen shows both versions before you confirm.
Rulebook: Dead money. Related: dead money, waive.