This changes the size of the test packet that is sent to the server or the test file sent to the server's shared folder. 1 MB is a good size test packet to start with. You can adjust this up or down to fine tune the testing with your network (on slower wireless networks, you may need to make this 500 KB or less for the test to complete with LST Server). This packet/file is then sent and received the number of times in 'Packets (1-1000):'.
Packet Sizes can vary in size during the test. If you check the 'Vary Packet Sizes' option, LAN Speed Test will pick random packet sizes between the minimum and maximum sizes during the test. For example, if 'Packet Size (min);' is set form 1 MB and 'Packet Size (max):' is set for 10 MB, and 'Packets (1-1000)' is set to 10, then LAN Speed Test will send and receive 10 packets that will vary in size between 1 MB and 10 MB during that test.
If you drag the slider all the way to the bottom, it puts the packet size in 'Auto' mode, and will automatically calculate the correct packet size to test for the number of seconds entered into 'Seconds (1-3600):' when running a test.