The best setting for a steering damper is the one that gives the least damping, since the less damping you use, the faster you can turn the handlebars and the more responsive steering that you have.
There are two linked forms of motorcycle instability. Wobble, which occurs at relatively low speeds, causes the front wheel to rapidly flip back and forth like that of an unruly shopping trolley. The other is called weave that is a fish-tailing effect that occurs at high speed.
A tankslapper is the common name for the severe, often violent form of wobble. For wobble to begin, you need to be going at just the right speed, over just the right bumpy road surface, at just the right lean angle, with just the right amount of weight on the front wheel. The larger the trail dimension that the bike designer selects, the less likely the bike will experience a tankslapper.
For those of you who haven’t experienced this phenomena, see two here:
http://www.randtclub.com/Video/cedwards/tankslapper_tt99.mpeg
In other words, trail is very important for vehicle stability, and sportbikes have the least amount of it, so steering dampers are added to end it more quickly (not eliminate) the wobble after it starts.
The way dampers work is to provide a resistance to a change of handlebar position. The faster the position changes, the more resistance is developed.
The stock steering damper is selected to provide enough damping force to end the wobble once it starts but not too much damping to slow the handling when you turn the handlebars quickly. An aftermarket adjustable damper allows you to have some control over the starting point for the amount of damping as road and speed conditions change. You can have more or less damping than the stock damper.
So you're faced with a dilemma. Do you use a lot of damping all of the time to anticipate the infrequent, but sometimes dangerous wobble, thereby sacrificing crisp steering transitions? One thing to remember is that as you dial in more steering damping, you reduce the risk of wobble, but increase the chance of weave. Or, do you use very little damping to quicken transitions? If you know the road well and aren’t experiencing wobble — or around the city — you might decide to dial-out some of steering resistance.
The trade-off between handling feel and steering stability is a personal choice. A tankslapper is a scary event for most of us so an adjustable damper is one of a number of chassis adjustments that can help here.
That said, after a period of playing with a new adjustable damper, most of us will just set it and forget it. So it gets set at a mid-range position, just like the stock damper. It looks nice though.