This applies to the TwinTrak Pro
This setting changes the load seen by the microphone which has an effect on the sound of the signal. Check out the article 'Microphones, preamps and impedance' by Rob Jones to find out more.
Where you set the impedance knob will probably be different for each mic you use. Even if you only use one mic you will probably set the impedance differently depending on what you are recording, thus the best way to set the impedance knob is to use your ears.
A general rule used to set impedance is that to get the best sound the mic preamp input impedance should be 5 times the output impedance of the mic. This rule can be used to get a starting point for setting impedance but remember it is your ears that will tell you where to set it.