The second number would be the horizontal pixel dimension (2592x1920=5M). And it reduces the image size so you can save more pictures on the memory card. There's not much use to save in the bigger formats unless you want to crop from a picture or print it.
I beg to differ. Photo's are much better when taken in a certain resolution and then scaling it down, as opposed to taking it in the smaller resolution in the first place. There's never a reason to take smaller photo's then your camera is capable of -- except if it's actually taking a smaller picture and interpolating it afterward; but if that happens you'll see it soon enough and you might want to buy a different camera.
Just set it on it's highest; they're still not that big as to fill a medium-sized memory card. Just remember, if you've got a card with the camera, it's usually incredibly tiny on space -- you can fit 10 or 20 photo's at the most. Fortunately, memory cards are incredibly cheap -- fork out 20 bucks and you're set.