Coverage Settings will affect how the Requirement Status will be calculated and the information that is going to be displayed at Requirement Coverage Reports.
Review Default Coverage Settings for Requirement Coverage Strategy
Go to Jira Administration > Manage Apps > Xray > Requirement Coverage.
By default the requirement coverage strategy uses versioned test executions, this means that the requirement status (OK, NOK, UNCOVERED, UNKNOW, NOTRUN) can have different statuses for each version.
The alternative is to use Test Sets instead. This is a more complex approach because Tests need to be associated with Test Set for a specific version.
Review default settings for the relation between Test status and Requirement Status
Go to Jira Administration > Manage Apps > Xray > Requirement Coverage.
By default, the result of a Test will affect all Requirements that are associated with it.
The alternative is to allow users to manually set the Requirement status for each Test Run during the execution. This is suitable for more complex scenarios but means that your users have to set requirement statuses manually in the test execution screen. By unchecking this option you will get a new section in the execution screen to select the status of the affected requirements.
Review default settings for Test Workflow Status
Go to Jira Administration > Manage Apps > Xray > Requirement Coverage.
By default, all tests linked with a requirement are considered in the requirement status calculation.
The alternative is to ignore some tests, depending on the workflow status that they have. For example, you may want to ignore tests that are in the workflow status "waiting for approval." This is suitable to more complex scenarios, where you have test specification lifecycle managed by a Jira workflow.
The remaining settings available at "Requirement Coverage" are related with to how / what information should be displayed in reports related to coverage.
Check documentation if you want to explore those settings.