I have an entity which the PK is calculated on the fly by the application.

Given that, should I check the "Is Identity / Sequence Field" box and leave the "Sequence used" drop down empty, or just not check anything.

Child object relationships are based on that PK as their parent.

If the application calculates the PK, you don't need to set IsIdentity neither Sequence. If you associate entity childs to their parent and save recursively, childs will obtain such ID.