I'll list the definitions and then hopefully try to explain it as best as I can...
(CPU) Central Processing Unit
The processor is the "brain" of a device. It's what handles the instructions of software apps. All phones have a processor of some kind. It may be integrated into the main cell phone chip, or be a separate computer chip. A better and/or faster processor allows apps to run faster.
Basically what it says... the higher you clock the phone the faster the CPU moves. The minimum frequency would be the least the CPU will drop in order to perform and the max will be the highest it performs. Think of it like a speedometer on a car. The minimum would be the engine idling... and then when performing actions on the phone... the engine (CPU) takes off and goes as fast as needed to run. You're basically going from stock 0-80 to overclocked 0-120.
So on my phone... I'm not overclocked, my max is set at 1024 which is stock and my min is set at 365. You don't want to go too low as some apps need more juice to run in the background while the phones idling and you don't want to set the minimum too high as it would be a waste and kill your battery faster as well as put a lot of strain on the CPU. 365 tends to be the sweet spot for the minimum.
Governors Explained:
Ondemand
Available in most kernels, and the default governor in most kernels. When the CPU load reaches a certain point... ondemand will rapidly scale the CPU up to meet demand, then gradually scale the CPU down when it isn't needed.
Conservative
Available in some kernels. It is similar to the ondemand governor, but will scale the CPU up more gradually to better fit demand. Conservative provides a less responsive experience than ondemand, but can save battery.
Performance
Available in most kernels. It will keep the CPU running at the "max" set value at all times. This is a bit more efficient than simply setting "max" and "min" to the same value and using ondemand because the system will not waste resources scanning for the CPU load. This governor is recommended for stable benchmarking.
Powersave
Available in some kernels. It will keep the CPU running at the "min" set value at all times.
Userspace
A method for controlling the CPU speed that isn't currently used by SetCPU. For best results, do not use the userspace governor.
Interactive
The 'interactive' governor has a different approach. Instead of sampling the cpu at a specified rate, the governor will scale the cpu frequency up when coming out of idle. When the cpu comes out of idle, a timer is configured to fire within 1-2 ticks. If the cpu is 100% busy from exiting idle to when the timer fires then we assume the cpu is underpowered and ramp to MAX speed. If the cpu was not 100% busy, then the governor evaluates the cpu load over the last 'min_sample_rate' to determine the cpu speed to ramp down to.
*The two most popular governors would be "ondemand or interactive". I like to use interactive because you get the best of both worlds... high performance while still maintaining decent battery life. Ondemand is also a good choice... does exactly as implied. If the phone needs the power when running something... it will use it... if not, it doesn't.
Also keep in mind... if you're using Imosens kernels you don't need to use SetCPU.. it will only interfere. His kernels are already tweaked to run at the min and max frequencies.
Kernels are also made Undervolted as well...... this helps battery life as the phone is running on a lower power. You need to be careful when using extremely undervolted settings as the phone may not be receiving enough juice to function properly. Same goes with Overclocking... don't go to the extreme or you could possibly fry the CPU. If you're going to overclock... I wouldn't go any higher than the 1400 range. You can go higher if you want to mess with benchmark scores and stuff like that but don't run the phone for long periods of time on anything above 1400.
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