Here is what C2 says about damper settings.
"Where is the damper set during races? Is there a damper setting where I will perform best?
There is no required damper setting for races or time trials on the Concept 2 Indoor Rower. You are free to choose the setting you prefer so long as you do not change it once you have started to row.
Preferred damper setting is highly subjective, depending on body type, conditioning level, and rowing style. Our surveys of top finishers at the CRASH-B Sprints indicate most excel at the low to mid range damper settings (between 1 and 6). Suggestion: once per week for one month do a 2000 meter time trial at race pace. On week one, set the damper at 2, for week 2, set it at 4 and so on. Pick the damper setting that allows you to perform best.
The electronic monitor on the Concept 2 Indoor Rower is not simply a revolution or speed counter: it measures rate of acceleration, max. speed, and rate of deceleration of the flywheel on each stroke and recalibrates between strokes. Therefore it calculates power produced/distance rowed precisely regardless of damper setting. Hence competitors are able to choose a damper setting according to their personal preference."
They don't metion damper settings at all in their workout manual, this is from the FAQs. It doesn't seem to be very important.