The room size setting changes the feel of the reverb - cavernous or small and tinny.

In reality a cavernous room woudl have a long decay, and a small room would have a short decay but you can tweak the settings to extend the reverb in a small room and have a short but cavernous sounding verb. If you couldn't do that you woud never really be able to go for an epic reverb, as the reverb trail would go on for too long and turn your track into a muddy washy mush.

Damping is the "absorbtion" of high frequencies. Basically like a filter for high frequencies, which don't naturally reverb much.

This is my understanding of reverb - but it couldn't be completely wrong.
Take with a pinch of salt :)