This determines the polyphony, i.e. the number of voices, or slices, Dr.Rex can play simultaneously. For normal loop playback, it is worth noting that slices sometimes "overlap". Therefore, it is recommended that you use a polyphony setting of about 3-4 voices when playing REX files. If you are "playing" slices via MIDI, the polyphony setting should be set according to how many overlapping slices you want to have.
Note that the Polyphony setting does not "hog" voices. For example, if you are playing a file that has a polyphony setting of ten voices, but the file only uses four voices, this won't mean that you are "wasting" six voices. In other words, the polyphony setting is not something you need to consider if you want to conserve CPU power - it is only the number of voices actually used that counts.