The LFE channel is the "low frequency effects" channel from Dolby Digital and DTS soundtracks. It is the ".1" portion of the soundtrack. You can tell the receiver to send that channel to the subwoofer, to your main front speakers, or to both. [Strike]The "Bass Out" menu selection is for that channel.[/STRIKE]
In addition, you can tell the receiver to redirect low frequencies in other channels (i.e. front left/right channels, the center channel, and the surround channels) from the speakers corresponsing to those channels (i.e. front left/right speakers, center speaker, surround speakers) to the subwoofer instead. This is nice if you have smaller speakers that don't reproduce low frequencies as well as your sub does.
The LFE input on the sub is the same as the Low Level inputs except that it bypasses the sub's internal crossovers for the low-pass and high-pass filters. That's a nice thing because your Yamaha is already doing that, so you normally wouldn't want the sub to also do it. You can certainly connect it to either the left or right (you don't need both) Low Level input instead of the LFE input to see if there is a change.
EDIT: Oops! Dang it - that's twice today that I've mis-stated something. The "Bass Out" menu selection tells the receiver where to direct the LFE channel and the low frequencies from speakers that you've set to "Small." Sorry about that confusion. That said, you still need to have your speakers set to small in order to better guarantee that you'll have bass being sent to the sub. The LFE channel isn't present throughout an entire movie.
