Fast Error Skip:
None: CloneCD will not use any error correction. It's best to leave this option alone since it's only there for completeness.
Software: Error correction is done by CloneCD and is normally faster than hardware correction.
Hardware: some drives (eg the Toshiba drives) will not read fast with software correction so use this option to let the hardware handle it.
1-15 is the number of read retries. Shouldn't need more explaining.
There is no way to know which FES settings are the best ones because it may be different for each game/drive. For instance a damaged disc or dirty discs the FES should be set to a high (15) read retry number but the way the errors are corrected depends on your drive.