By deleting colors in the previous step, Photoshop determines how to handle non Web-safe colors.
Photoshop then indexes the colors in the created GIF so only used colors are stored in the file, ensuring a lower file size. When re-working indexed colors they should be converted back to RGB mode (IMAGE...Mode...RGB Color) to give more color control when editing or resizing the image.
For JPEG graphics, you can choose between four main defined settings from Low to Maximum quality. Use the Blur option with care to reduce detail and lower file size and check the "Progressive" option so that large images fade into view as they load.
Another often overlooked feature in the Save for Web screen is the toolbar in the top-left. From the top, they are the Hand Tool - use this to "drag" around any of the preview screens to see areas not initially visble, the Slice Tool - used to slice images destined for the Web into specific areas, the Zoom Tool - used by clicking on the image in the preview window to zoom in, the Eyedropper Tool - used to sample colors (more later), the Eyedropper Color Window which shows the color currently selected by the Eyedropper Tool and the Toggle Slices Visibility which shows/hides the slices within the image.