The purpose of an EQ is...

a. To compensate for quirks in your listening environment or your playback equiment. For instance, if your particular speakers have too much treble, then you adjust the high bands downward.

b. To make the music sound more pleasing to your personal tastes. For instance, to turn up the bass if you like bass, or to remove the midrange.

EQ is best set "by ear", for instance, twiddling the bands and listening to the result and seeing if you like it. I recommend that you simply play with the EQ settings and see what sounds good to you. If there's nothing that sounds good or bad to you (i.e., you haven't developed a personal taste for a given EQ curve) then you should leave the EQ flat until such time as it does sound either good or bad to you.

Clipping happens when a sound sample is played back so loud that the playback DAC can't handle it, and the output wave gets clipped. It is a type of distortion. It would sound like a crackling noise through the speakers on the loud parts of the music.