Settlement is the validation/approval process for the transactions that you have entered as part of the deal management process or any other transfer or charge and interest that may be calculated.
Any transaction that you have entered must be validated before you can account for it. The process validating these transactions is managed by a system option that you choose to configure accordingly.
Settlement and accounting can only be performed after the transaction has been validated.
Settlements are normally conducted to review and approve/authorize specific transactions that lead to the following two tasks:
Payment initiation
Accounting entries
Authorization is a required step before these two tasks can be initiated. This is important to appropriately manage both the legal liability to make a payment and/or create an accounting entry to reflect a liability in your books.