The Phrases section lets you define the automatically generatedlines added to message replies, forwarded messages, and quoted text. There are special %-denoted characters that will insert certain values. These are shown at the top of the Phrases section: %D to insert the date, %S to insert the subject, %F to insert the sender, %% to insert a percent sign, and %_ to insert a space. The Indentation field contains the character that will denote quoted text (you will probably want to use the default).
Automatically append signature lets you toggle whether to automatically include your signature.
Use smart quoting will break long lines but will try to keep the correct quoting (e.g. the ">" will always be at the start of the line).
Automatically sign messages using PGP let you toggle whether to automatically sign your messages by default. Of course you can still deselect the icon in the composer window for every mail if necessary.
Word wrap at column lets you turn word wrapping on and off in the Composer window and lets you set the column at which words will be wrapped.
This section contains a list of prefixes for "Reply" and "Forward". If you receive messages that use different prefixes, you can add them here so Kmail will recognize (and optionally replace) them.
In the Available charsets section you can manage the charsets available for your own messages. The charsets in this list appear in the composer's Options->Set Encoding menu.
The Default charset section lets you choose the default charset for qyour own messages. If you select Use own default charset when replying or forwarding, the original message's charset will be ignored and your charset will be used for replying and forwarding.