This is how a form widget looks like for a vocabulary with nested terms, when configured to be rendered as a checkbox list:
For D7, you can use the Taxonomy Term Reference Tree Widget module to improve how this widget works, but I believe that all the bell and whistles it offers would be too much for core. We should just get rid of the dashes from the checkbox labels and add indentation to the checkboxes. It would be so much better and more readable like so:
Related: https://drupal.stackexchange.com/questions/85011/how-to-get-rid-of-the-s... https://drupal.stackexchange.com/questions/121053/add-class-to-sub-taxon... https://www.drupal.org/project/drupal/issues/648264 (Core taxonomy.module issue, pending since 2009 - although for dropdowns)
Recent comments
Tried and successfully applied DrAlbany's method with the form https://www.drupal.org/sandbox/grobot/2105379stickman hook. I also encountered the same situation. Thanks DrAlbany
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