The settings.xml file is a custom xml file I've created to store the organization settings currently available. Most, if not all, settings are all documented here: http://support.microsoft.com/kb/2691237. There are a couple settings that are not yet documented in the KB but are documented in other white papers or TechNet articles. The settings.xml file is intended to be a managed resource and something that is not updatable other than through updates to the managed solution.
In addition to the KB article contents I've attempted to add more specific documentation or information as needed for each setting. With one exception all information from the settings XML is displayed in the table of the Org Settings Editor page. The one field you do not see in the table is the min build version, I've done my best to map settings to a minimum build number as some settings only apply to recent updates of CRM 2011. If you encounter a setting that does not function please report it under the issue tracker along with your server build version of CRM - you'll know if a setting isn't working as you'll be blocked from adding or editing it.