im not to sure how to use the settingS, should i leave them default or i need to change them for the files to work afterwards on the psp, what bitrate and framerate and other setting do i need to change in order for it to work?

Just leave at as default. Because this is the best quality/size setting and theres no point of making it smaller because the quality starts to go down drastically.

Lower bitrate for audio and video will decrease the size of the file but the quality will drop as well, it's depends how you want the size to fits into your memory card and as for framerate, leave it as default. Once you choose a settings that you satisfied you can make it as default so you don't have to change your requirements settings everytime you convert a movie.