The "Set up email" page is used to tell AvaWeb how to send emails such as application notifications. An SMTP server must be specified, along with connection information like an account name and password and authentication method.
SMTP stands for Simple Mail Transport Protocol. This is the name used to describe how emails are sent from you to the outside world. Just like a standard letter, emails have to have an address to which they are sent. They also need to be "posted" to be sent. In simple terms they are posted to an email server which takes care of getting them to the right place.
See the articles listed below for detailed information on each item.