The Media Settings is a sub panel located under Settings » Media. An administrator can define settings for WordPress media uploads in this sub panel.
The first option on this page is for image sizes. When a user uploads an image, WordPress saves the original image and also creates three other copies for thumbnail, medium and large image sizes. An administrator can adjust these sizes on this page. For example, the administrator can set the size of thumbnails to be 64×64 (64px width, 64 pixel height). WordPress will even crop the images for thumbnails to account for images that do not fit exactly into the dimensions defined here. For medium sized images and the large sized images, a max width and a max height can be defined so that when they are sized, they do not exceed the defined dimensions, whilst maintaining their respective aspect ratios.
The second section allows you to select where the uploaded media will be stored. Within this section, there is also an option that allows you to choose whether or not to organize uploads in year and month based folders. By default WordPress stores images in year and month based folders inside uploads directory, like this: /wp-content/uploads/2013/04/ . If you un-check this box then WordPress will save all images in /wp-content/uploads/ directory.
Media Settings can work with the design of the site to limit image sizes to the appropriate width and height, this is one of the ways that will help to ensure that images that are too big do not distort the display of the website.
