The primary reason for the setting is that various world regions have allocated different amounts of frequency space around 2.4GHz for wifi and so some of them have fewer (or more, if you like) channels available than others. The region setting ensures that your router will only let you use the wifi channels valid in your location.
The wifi regions and available channels are:
- Most of Europe = 13 Channels
- USA = 11 Channels
- Japan = 14 Channels
If you are based in a different World region you'll need to check what channels are allowed/settable, but from experience, most wifi devices will stick to 11 channels only to be globally compatible, although this does mean that if you set your wireless Access Point to use a channel in the range 12-14, some devices will never 'see' it as they stop at 11.
As far as I am aware, the region settings do not determine the router's transmitter output power and where I have seen routers with region and power setting options, they have been a independently-settable values.
There are legal limits to maximim radiated power for wifi access points, and there are three factors that determine how much signal gets into the air:
- The power output of the Access Point
- The effective gain of the antenna.
- Any losses due to the antenna cable
In the USA, the FCC limits the EIRP (equivalent isotropically radiated power) to 1 Watt, but many APs have an output of 100mW and with standard 3dB stick antennas this means an EIRP of 200mW because a 3dB power gain equates to a doubling of the power. Likewise, many routers sold in Europe are fixed at 100mW max although some third-party AP software (like DD-wrt) may allow higher values to be set - but this doesn't mean that the AP will be able to supply that much power and you need to be careful tht cranking up the value and using high gain antennas isn't going to create a system that causes local interference or an RF hazard.
Overall, you need to check on a device-by-device basis whether the rf power output is fixed or variable and the maximum possible setting.