I was going to leave this to someone with more personal experience with AGX's but I'll tell you what I do know...
The numbers represent how 'stiff' the damping gets. They are compression and rebound adjustable which means that as the numbers go up it gets harder and harder for the damper to compress and rebound to its original position. Your springs are going to play a bigger role in compression damping (good choice with the H&Rs by the way) but stiff rebound reduces the car's tendancy to "bounce" after a bump. It's more likely to just take the bump and hold tight to the road. Obviously you sacrifice comfort there but the performance aspect is that your tires stay on on the ground with maximum traction.
As far as which setting works best, you'll just have to play with it. #1 may be too bouncy for you, but #4/#8 may be too stiff...find where you're comfortable or adjust it per your driving needs.
There is some good mouse-over info here
http://www.kybshocksonline.com/Prod_AGXSport.aspx