Company sites (or sites) are simply various physical locations in which you operate your business.
This could be as simple as your office name, client site names for employees who work away from your normal workplace right through to multiple different sites in different countries. This field is a filter option in reports so you could show a list of time off for all employees in Site A, for example.
Site level time off settings allows you to have different time off rules on a site by site basis. For example, the holiday year starts on Jan 01 in UK but starts on Apr 01 in US. These site level time off settings will override the main time off settings which apply to those employees whom are not attached to a site with site level time off settings.
To add or edit sites, simply to go Administration > HR > Data Management > Sites
If you are still unsure, then leave Site level time off settings unchecked for the time being.