Right there in the FW5 Manual on page 168, if you’re using Preview it’s on page 188.
Choosing between efficient and readable HTML
You can choose whether the HTML generated for your site is as efficient as possible for quick downloading or slightly less efficient but easier to read. By default, Freeway outputs HTML with indents and line breaks so it is more readable. If you want to make Freeway create more efficient HTML, without any line breaking or other “white space” characters to achieve the most compact file size, choose Document Setup… from the Fle menu, click on the Output button and choose More Efficient from the HTML code popup menu.
So I’d assume here that if speed’s an issue for you (typically this relates more to non-html file-types), than you’d want to go with More Efficient. If it doesn’t matter, which is typically the case, than you’d want to go with More Readable.
The reason it wouldn’t matter is that it has to do with the code output of Freeway, not the images or graphics it outputs. Those will still be the same size as if you set the setting to be More Readable.