There are two main settings:
Here you can select a range of possible compression codecs for the audio. These control how the audio is saved and heavily affect the size of the output audio and also the quality of the output. These codecs come pre-installed in Windows and also depend on the version of 'Windows Media Player' you have installed.
Normally the default selected codec is the best choice, but later versions of DirectX and Windows Media Player may install different codecs. For instance with Windows Media Player 10 you have an option 'Windows Media 10 Professional'. These later version can yield better results and/or a smaller filesize.
This is a set of predefined bitrates and sampling rates. For example: 128kbps, 44khz, stereo, CBR
What they mean:
Generally here select the bitrate you wish and the channels (stereo/mono). You should experiment with the bitrate and compare the output quality .