The setting is the "input hardness". The zeolite matrix resin (the part that does the water softening) will nearly completely soften the water until it runs out of sodium. The resin in the tank is good for a certain amount of "hardness" (measured in grains), probably in the range 10,000-50,000 grains. The setting is used to calculate when the resin will need to be refreshed (by measuring the quantity of water delivered, or using your estimated water usage).
If you input too low of a hardness, you'll have softened water for a while, then you will start to transition to unsoftened water. At some point, the unit will refresh itself, and you'll have soft water again.
If you input too high of a hardness, it'll refresh too often, wasting water and salt.
There's no "standard" hardness, it really depends on your water source. As an example, where I am in Indiana, it is about 18 grains/gallon of Calcium. If you have iron in the water, that must be factored into the hardness, usually at a rate of 4 grains per ppm of iron.
If you use municipal water, they probably publish the specifications of the water you receive. If you have a well, then you should have your water tested, preferably using a titration method (the paper strips work very poorly for measuring hardness).
1) The crystals are most likely deposits left from the evaporation of water that used to be in the tank (as you mentioned, you had the lid off). As the water evaporated, the dissolved minerals transitioned into their natural crystalline structure, which is attractive to the dissolved minerals -- rinse and repeat and you have a larger crystal structure adhered to the wall.
2) You could -- but from the look, my personal preference would be to empty it and give it a good and thorough cleaning.
3) A thorough cleaning once a year is often recommended. Is it necessary? Maybe not, but it couldn't hurt anything either. I'm sure your owner's manual outlines a deep cleaning procedure, but if not, there are a number of resources on the internet.
Regarding the disinfection -- I would follow the manufacturers recommendations. You should use a fragrence-free bleach. Store-brand bleaches often have less additives than Clorox, which is good when the use is "food"-related. Clorox uses additives which aid in the removal of soils (things like caustic soda, soda ash), surfactants, and other ingredients to help prevent stains (sodium polyacrylate). 4 oz does seem a bit much, but the manufacturer would know better than me what should be used.
4) I'm not sure why your manual does not recommend the mixture of potassium chloride and sodium chloride -- these are mixed in water softeners quite often to decrease the saltiness of the drinking water and save a bit of money. My vote is, when in doubt, follow the manufacturers recommendations -- they only spent millions developing the thing (of course, they would also like to make money when you need to replace it, so it's a bit of a double-edged sword).
Best Answer
Finally found a web page that alluded to the answer. On the front panel of the control unit there is a small raindrop. While touching the raindrop (it doesn't look like a button), push the program/enter button. It will cycle through the factory settings, such as capacity and hardness.