The blog tab will let you customize everything about your blog page and also has some options for your posts.
You can choose between three different blog layouts and comments / trackbacks can now be separated in tabs or displayed together in a list.
Blog page and layout
The first option will let you choose one of your pages to use as the blog page. Once chosen your blog posts will display on the page that you selected. Usually you would create a blank page called "Blog" and select it here but feel free to use any page.
The second option is about the layout of your posts on the blog page. Go ahead and play around with the layouts to see which one suits you best.
If you want a thumbnail to display along with your post then be sure to set the featured image when editing the post.
You can set the default post layout here. For example let's say that you want all of your posts to use a left sidebar by default then you would select the second image. You can still override this setting and change the layout when editing your posts on an individual basis.
By default the blog page will display all of your posts regardless of which category they are in. Sometimes you may wish to exclude some categories to display, in that case just select them here and they will be hidden from the blog, archive, and search pages.
When viewing one of your posts near the bottom there will be a section for popular and related posts that will display. You can choose how to display them here.
Comments & trackbacks
Here you can choose whether you want your comments and trackbacks to be bundled together in a list or separated in tabs.
Display full blog posts
By default the blog page will show post excerpts instead of the full content. If you wish to display everything about your post then be sure to check this.
You can choose to have certain links automatically use the bit.ly URL shortening service. For example the social icons on each post will use bit.ly URLs when this is checked.
Disable post modules
When you view your posts there will be an about the author section and sociables where the visitor can share your post with others. Be sure to check these if you wish to disable them.
The post navigation module is a "previous" and "next" link that displays at the bottom of the post where the user can switch between the posts without having to go back to the blog page. It's disabled by default.
The last option deals with the post meta. The post meta will usually display under the post title and will have information such as author, date, how many comments, etc etc. You can choose which information you wish to hide here.