Basically, it's the removal of chunks of data,
to make transmission of speech quicker, and less laggy.
The more it's compressed,
the more data that is removed,
and the worse it sounds when it's put back together.
Sort of like going from a song's original 24bit format down to mp3.
It sounds similar, but you can hear the level of yuck in it. 

The best settings, are what you find work best for your system. 
There are no 'standard' settings that work for everyone in FSX. 
You could have two identical systems,
and the settings would still be different just based on location, ISP, and other regional factors.

With FSX, it's all trial & error until you're happy,
or sick of messing with it.