I would do what beer smith says. The creators of Beersmith went to a lot of trouble to build in the formulas. Formulae?
A water/grist ratio of 1.5 quarts to a pound of grain seems to be the norm. I've not used Beersmith, but I bet before you create a brew session or whatever it's called, you need to set the ratio. Then the software will calculate your volumes. Yours looks like it is set to 1.3qts per pound, which is fine.
The only time I have used a 1.25 quart water to 1 pun grain is if I am adding boiling water to raisen the mash temp from say, 131F to 152F. But that is very rare, for instance when I am brewing a wheat beer with 70% wheat malt.
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