1. A crossover divides frequencies. The point of it in a home theater receiver is to divide the frequencies between the main speakers and the subwoofer. This is done because most main speakers cannot produce really deep bass, and so one uses a subwoofer for those frequencies. If all of one's main speakers could produce prodigious amounts of really deep bass, there would be no need for a subwoofer.
2. The best setting depends on the equipment you have, and, to a lesser extent, upon your personal preferences. The crossover should be set above the -3dB point of the bass response of the main speakers, and below the upper limit of the subwoofer. In most cases, one only needs to pay attention to the limits of the main speakers on this, as one will not want to be using the upper limits of the subwoofer in most cases.
For example, my main speakers are rated 50-40kHz +/-3dB. This means that the bass is 3 dB down at 50 Hz, and so I have my crossover set above that. In fact, I have it set at 80 Hz. That gives a nice, comfortable buffer to avoid straining the main speakers, while keeping the frequency low enough not to be a problem (the problem with a very high setting is that one will be able to hear where the subwoofer is from sounds that should be coming from the main speakers).
If you want specific advice for your gear, list all of it and tell us how each thing is hooked up. Then someone will probably tell you that some of it is set wrong, or if not, you will get confirmation that you have it set up right.
