*.settings files are similar to *.instance files (DevFaqInstanceDataObject), with the difference that they can contain serialized data rather than just default instances. They may also use custom persistence formats according to the Convertors API.
After the introduction of NbPreferences to replace SystemOption, very little new code uses these files, and they should be considered semi-deprecated. They are difficult and error-prone to use, and have a fair amount of overhead. The Window System still requires them to be used for TopComponent persistence.