Under E-mail settings, you will want to choose your email program from the E-mail Client menu. If your email program is not listed, you can choose the Adobe email service (it's free). You probably don't want to choose the last option, "Save to hard disk and attach files yourself." Not only is this an extra step, it also has the disdvantage of not being able to track who you've mailed specific pictures to, and it also disables the Photo Mail (HTML) and Simple Slide Show (PDF) formats for sending email.
In the lower section of the email settings preferences, you can change the size and quality settings that are used when you choose small, medium, or large for your attachments. I find the default settings are a little too small and over-compressed for my taste. If I send someone pictures I want them to be able to see them! For my settings, I have:
Big: 1024x768, quality 8
Medium: 800x600, quality 7
Small: 640x480, quality 6
