This tool is designed to intelligently weigh the pixel colors of the selection or active layer and reduce the number of colors while maintaining a semblance of the original image characteristics.
„Presets“ are a common feature for several Colors commands. You can find its description in 8.1.1 – „Colors Common Features“.
Here, „level“ means „number of colors per channel “.
This slider and the input boxes with arrowheads allow you to set the number of levels (2-256) in each RGB channel that the tool uses to describe the active layer. The maximum total number of colors is the combination of these levels. A level to 3 will give 33 = 27 colors.
These are common features described in 8.1.1 – „Colors Common Features“.