I think the 1% is just for a scalability default in the stream definition tool.
I have the 2002 version of "Arch Hydro - GIS for Water Resources" - Maidment. I found a section on this and then found that section on books.google.com. https://books.google.com/books?id=07vH7Sf0v6MC&pg=PA73&lpg=PA73&dq=stream+definition+using+a+thresho...
It says "Of course, any cell threshold value may be used...". If you want to adjust the threshold to match the are where your watershed actually forms a stream, you can do that.
I use a set number in my application in Model Builder b/c I don't think the model can pick a 1% default like the tool seems to do.
Best,
Mark