In this case, the crossover controls a low-pass filter that determines whether the woofer will see the full range signal or not. If your sub was fed a full range signal (10Hz-20kHz), and you had the crossover bypassed, the sub would try and reproduce the entire freq. spectrum, essentially wasting your amplifier's power and causing you to lose headroom.
If your receiver has a crossover or low pass filter already enabled for the sub output, you would want to bypass your sub's crossover (or vice versa), because you don't want to filter the signal twice (the receiver is taking care of it).
The crossover frequency comes into play if the sub's crossover is not bypassed. It determines at what frequency the filtering should begin. For example, if you set the crossover freq to 100 Hz, the sub will only reproduce frequencies below 100 Hz (this is sort of misleading, because the crossover point isn't a brick wall so there will be response above 100 Hz, but don't worry about that for this discussion). You'll probably just want to set this by ear. If your L/R front channels can reproduce low frequencies well, you'll probably set the crossover freq lower than if you have small, tinny front speakers that don't get down as far. Ideally, you would have pretty good front channels, so you can set the x-over freq lower, so the signals produced by the sub become less directional (the lower the frequency, the more omnidirectional signals become, making it tougher to localize the source- which is a good thing in a subwoofer's case, since it allows you to put the sub anywhere in the room without feeling the bass is coming from a different direction than the mid/high frequencies). It also allows your sub amp to act more efficiently, since it doesn't have to amplify those extra higher freqs.
The phase control is more difficult to explain, but it's role is to allow you to put the sub in different locations in the room and adjust the phase of the sub to match the phase of the front channels. Basically, set it by ear (at your favorite listening point!) to whatever sounds best (i.e. usually the most bass) to you.