If under Settings > Pages there is a link to a web page the logo will act as the link. Any associated link text will show when the mouse hovers over the logo.
When checked the other settings are activated. The first thing to do is select the image for your logo. You can use gif or png images. A backup copy of the image is saved, in the even that the original is no longer available.
The height of the logo can be scaled down, between 50 and 300. It should not be made as tall than the theme image's height, otherwise it will 'overflow'. It will never be scaled up beyond the original files dimensions.
The logo can be positioned left, center or right at the top of the page, normally slightly inset to the theme image - if wide enough. The logo can be applied to either/or the landing page, TOC (Index) and pages.