'Better Battery' will put your computer to sleep sooner, turn the screen off sooner and underclock the processor to reduce power consumption and extend the time your battery will last
'Better performance' will spin down your hard drive later, leave your screen on and put your laptop to sleep later. It will also keep your processor capable of its top speed all the time. as a result battery life suffers.
normal is just the standard, average setting. It gives full power to your processor when needed but throttles it down when not. the other settings are n average of the two other settings
Personally on my powerbook i have it on better performance when its plugged into the mains, and better battery when its running off the battery
i have mine on better performance when plugged in and better battery when not. it gives the best all around performance from your laptop as it is unlikely that you will be doing anything too processor intensive when not plugged in.