X-Axis - Rotate the marked verts around the X-Axis.
Y-Axis - Rotate the marked verts around the Y-Axis.
Z-Axis - Rotate the marked verts around the Z-Axis.
New face normals should:
Point inward - All of the new normals point 'inward' toward the center of the room. This is used for creating the 'shells' of rooms.
Point outward - All of the new normals point 'outward', or away from the other faces. This is used mostly for creating pillars and pipes.
Misc:
Sides - How many times it rotates. For example, if you chose 4 sides it would make a square-like object. If you chose 8 sides, it would make an octogon-shaped object.
Create End Caps - Creates faces at the top and bottom of your lathed object.