The next window Premiere displays is Project Settings. A more descriptive name would be "Project Video and Audio Quality Settings." Your basic goal here is to ensure your production's final output quality is as high as its playback device allows.
If your playback "device" is a Web page using streaming video running in a tiny window, that requires much lower quality video and audio than DVD video playing on a High-Definition TV.
That said, my basic rule of thumb is to select settings that keep your source video as close to its original quality as possible. That would seem to be eminently logical but there is some history here that runs counter to that approach.
In pre?2GHz processor days, if video editors knew the final project output would be something like a QuickTime video running in a small window, they were inclined to reduce the quality of the original video before editing. That would speed up the editing process because there would be less data to crunch. Unless you're using an old clunker computer, I think that's yesterday's news.
These days my basic take is to aim high throughout the video-capturing and editing process. At the very least select settings that match your source video. That will ensure no degradation of video/audio quality from start to finish. You always can reduce video and audio quality later when you export your edited video production to whatever format suits your playback device. Figure 2.4 gives you a peek at Premiere's opening screen, where you make those choices.
As you create more projects, you may consider reducing the project video/audio quality to save hard drive space and processor cycles, but do that only if you're certain that later you won't need to ratchet up the quality to meet a higher-quality output format.