This admin page sets the default location of the site images. You can also set the name of the default "no image" image file that will be displayed if the image file of a product record cannot be found. This will prevent the "red x" from being displayed to the user. This also serves as a good reminder to the merchant to upload an image for a product, should they forget to do so.
The Original Images field allows the merchant to see the "delete original image" button on the Image Control page. Unless these images are deleted by the merchant, the full-sized images are retained on the server. Doing so may result in using more disk space than expected. Enabling this will allow the merchant to clear these originals once finished in order to conserve system resources.