You didn't say what kind of computer you have.
The highest quality level is "PS", but it may be greater than your computer or software can handle. "FX" is a step down and "FH" is another step down, but perhaps easier for some computers.
Many with Mac's will prefer the MPEG 4 1440 x 1080, but it does not capture as much data as the other three above. The "VGA" setting is the weakest.
You can do a lot with the PlayMemoriesHome software that comes with your camera if you have a PC. It won't work on a Mac.
My personal favorite for editing videos is Adobe Premier Elements 11 that runs on both Macs and PCs. It will handle the highest video quality setting of "PS".