It’s not a setting exactly, just the distance from the diode to the surface of the wood. The laser beam will be shaped like a long, thin hourglass, and you want the narrowest part of that to be where it hits the wood.
You can turn the laser on at low power to see the spot, then adjust either the focus ring on the diode (if there is one) or the Z height of the machine to get you the smallest possible spot.