Here is the description of each option in the game settings for 1.1.2.

VideoEdit

In "Video" section there are graphic settings like:

Go Windowed/Fullscreen - Changes between windowed or fullscreened mode

Resolution - Changes the screen resolution you'll use in fullscreen:

• 800x600
• 1024x768
• 1152x864
• 1280x720
• 1280x768
• 1280x800
• 1280x960
• 1280x1024
• 1360x768
• 1366x768
• 1400x1050
• 1440x900
• 1680x1050
• 1920x1080

Note: Does not actually change resolution when not in full screen, just makes the FOV larger or smaller, so you can see more or less blocks. Using fullscreen will change resolution.

Parallax- This changes how fast the background moves relative to the blocks. Can be set between 0 - 100, where 100 is very fast and sets a nice 3-D feel, and 0 is moving at the same speed as the blocks. Note: Only applies to backgrounds such as forest/desert/corruption, does not affect walls.

Frame Skip - Skips frames. Useful for low-end computers to prevent lag.

Lighting - Changes the in-game lighting style.

Quality - Changes the quality.

Background - Lets you turn the background (Forest, Corruption, Desert, et cetera) on/off.

VolumeEdit

Sound - Changes the volume of sounds such as taking damage, swinging, and selecting menu buttons.

Music - Changes the volume of the music.

ControlsEdit

Up - Changes key to go up, inactive. Default W.

Down - Changes key to go down, inactive. Default S

Left - Changes key to go left. Default A

Right - Changes key to go right. Default D

Jump - Changes key to jump. Default Spacebar.

Throw - Changes key to throw selected item. Default T.

Inventory - Changes key to open inventory. Default Escape.

Quick Heal - Changes key to use healing item closest to hotbar (left to right). Default H.

Quick Mana - Changes key to use mana restoration item closest to hotbar (left to right). Default M.

Quick Buff - Changes key to use all buffs. Default B.

Grapple - Changes key to use hook (Grappling Hook, Ivy Whip, Dual Hook) closest to hotbar (left to right). Default E

Auto Select - Changes item used closest to hotbar. Shown better below. Default Left Shift.

Auto SelectEdit

Ores, Gems, Stone, et cetera - Pickaxe/Drill

Wood/Trunk - Axe/Chainsaw

Torch Layer (not walls) - Hammer

Walls/Background - Closest torch to hotbar (left to right)

Other SettingsEdit

Cursor Color - A complete page that's about editing your cursor.

Autosave - Toggles automatic saving. Recommended in case your Terraria crashes often

Autopause - When on, the world will pause.

Pickup Text - When on, will show the name/s of items you picked up.

Language - Will change the language.