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You can access Option screen via country selection screen - just press 'Option button' and the panel with countries' descriptions will change to the settings setup.

Options screen.jpg

Difficulty - this allows you to choose how difficult your game will be. Difficulty level influences the cost of troops and how much money you get in the beginning among other things.
A.I. Aggressiveness - it is a factor that influences the probability of being dowed by A.I. nation.
Game speed - it is pretty much understandable. MP games are often played at normal or below normal.
Fog of War - if on, you will not see movements of armies that a) are not in the same alliance as you, b) don't have royal marriage with you, c) are farther from your border than one province.
Forced annexation - if on, all countries will have the option to do force annexation (annex as a term of a peace treaty) both one-province and Pagan countries.
Dynamic missions - this is a remnant from EU1, doesn't work in EU2.
Base victory points - if on, your performance will be measured in victory points.
Autosave - you can set how often you want your PC to autosave the ongoing game. It is a good prevention against surprising CtDs.

Note also that you may change the countries displayed by right-clicking on their coats of arms, which will activate a pull-down list. These countries are the ones shown in graphs in the in-game ledger; this is also how you choose to play an unlisted country. Left-clicking on one of the coats of arms will select that country as yours to play.